A Company Recently Lowered Its Service Performance from 99% Product

Multiple Choice

A company recently lowered its service performance from 99% product availability to 97% product availability. The change saved the company exactly $1million per year in inventory carrying cost.Senior management now wants to lower the service level to 95% from 97%. Such a further change is likely to save:

A) less than $1 million
B) about another $1 million
C) more than $1 million
RajDee Furniture Company (RFC) buys and sells office furniture. The company buys chairs from a manufacturer for $40 per unit. Order costs are $200 per order and there is a lead time of 10 days for each order to arrive from the manufacturer to RFC warehouse. Inventory carrying cost for RFC is 10%. Average yearly demand for the chairs is 40,000 units. Answer the following questions, assuming there is no uncertainty at all about the demand or the lead time.