The demand for refrigerators at an appliance store adheres to the following probability distribution:

Demand per day
0
1
2
3
4 Lead
Time
1
2
Probability 0.15 0.2 0.3 0.2 0.15 0.80 0.20
Random # 01-15 16-35 36-65 66-85 86-00 01-80 81-00

The store orders 4 refrigerators per day to have in stock to meet demand. They are trying to maintain low inventory levels. The holding cost is $5/unit/day. The ordering cost is $20 per order. The lost sale cost is $10/unit. A simulation is to be developed to estimate the average daily inventory cost over 5 days. The table below shows the random numbers to be used for refrigerator demand and lead time on orders:

demand random number lead time random number
day 1 88 54
day 2 27 94
day 3 32 44
day 4 36 75
day 5 54 71

Assuming that beginning inventory is equal to 5 with no prior orders in transit, what is the overall average daily cost of inventory for the 5 days?

Beginning Inventory Demand Ending Inventory Order Lead time
day 1 5 4 1 4 1
day 2 1 1 0 4 2
day 3 Day 1's order
4
1
3
4
1
day 4 3 2 1 4 1
day 5 Days 2's & 3's
9
2
7
4
1

Average Daily ordering cost = ($20 * 5)/5 = $20
Average Holding cost = $5(1 + 0 + 3 + 1 + 7)/5 = $12
Average Lost sale cost = $0

Total average daily inventory cost = $32.