Description of a two-echelon inventory model with exact expressions for the stationary distributions of stock-on-hand and backorders at the various facilities. Items are completely recoverable, completely consumable (nonrecoverable), or recoverable with a positive condemnation rate. Repair is performed at base or depot levels, and repair and transportation times are assumed to be deterministic. The model applies to items with reasonably low base demand rates since it is assumed that the bases use continuous review replenishment policies and the depot uses a general policy unless the item is completely recoverable. A solution algorithm enables the construction of a cost-effectiveness curve of inventory investment vs. expected base backorders under an optimal allocation. Because the model yields exact results, it can be used to check other techniques that are developed to treat positive condemnation rates or low demand consumable items. 44 pp. Ref.