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Here,
r : annual demand in units.
k: production rate of the items.
t : time when we consume and
build up.( t1 + t2 )
Manufacturing model with shortages.
The assumptions made in this model are the same as the above model.
There are four components of inventory cost:
1. Item cost 2. Setup or order cost 3. Items holding cost 4.shortage
Schematically it can be represented as follows: