Kelly's Service Station Does a Large Business in Tune-Ups

question 40

Essay

Kelly's Service Station does a large business in tune-ups. Demand has been averaging 210 spark plugs per week. Holding costs are $.01 per plug per week and reorder costs are estimated at $10 per order.
Kelly does not want to be out of stock on more than 1% of his orders. There is a one-day delivery time. The standard deviation of demand is five plugs per day. Assume a normal distribution of demand during lead time and a 7-day work week.
a.
What inventory policy do you suggest for Kelly's station?
b.
What is the average amount of safety stock for the reorder point in (a)?
c.
What are the total variable weekly costs including safety stock costs?

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Definitions:

Favorable Light

An expression indicating that something is viewed or presented in a way that makes it appear positive or beneficial.

Projective Test

A psychological assessment tool that uses ambiguous stimuli to elicit responses that reveal aspects of an individual's personality.

Ambiguous Stimuli

Refers to sensory information that can be interpreted in multiple ways, leading to uncertainty or variability in perception.

Inner Thoughts

Personal, private reflections or considerations, often not voiced or shared with others.