Suppose management decides to relax the policy about stockouts on a month-to-month basis.Instead,they just want to make sure that they end the entire five-month planning period with a zero balance on inventory.They have never worked this way before and don't have an idea what it costs to stockout,so they assign a value of $0 for each unit stocked out.What is the optimal planning period cost?
A)$42,520
B)$45,220
C)$40,225
D)$42,250

Question

Quizplus · Accepted Answer

Since the management only cares about ending the planning period with zero inventory, they don't care about the cost of stockouts. Therefore, the optimal solution is to order only the amount that is demanded in each particular month. Using the given demand for each month, and assuming no holding costs since inventory levels at the end of each month are zero, the total cost comes out to be $40,225.

Suppose Management Decides to Relax the Policy About Stockouts on a Month-To-Month