The SCO Company sells desks that have a demand of 4 units permonth and cost $25 each, the annual carrying charge is 30 percentof the product value, and it costs $15 to place an order. Thecompany is considering installing either a Q or a P system forinventory management. The standard deviation of demand has been 4units per month, and the replenishment lead time is two months, a90 percent service level is desired. For Parts a and b below,specify the two key decisions under each inventory managementsystem, and describe the implementation of the respective system(e.g., the description of a EOQ system with reorder point R andorder quantity Q will be: When the inventory level drops to thereorder point level R, then a new order of size Q will be placed).You can round your calculations to 3 decimal places.
a) How would you design a continuous review system?
b) How would you design a periodic review system?
c) What are the pros and cons of using the periodic systemcompared with using the continuous review system for thisproduct?
