Scenario 9.7 Cranium, Inc., Purchases Term Papers from an Overseas Supplier Under

Multiple Choice

Scenario 9.7
Cranium, Inc., purchases term papers from an overseas supplier under a continuous review system. The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day. It costs $60 to process each order and there is a five-day lead-time. The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level. Cranium operates 200 days per year.
-Use the information in Scenario 9.7. What is the annual cost of holding the safety stock necessary to maintain the 98% service level?

A) less than or equal to $30
B) greater than $30 but less than $40
C) greater than $40 but less than $50
D) greater than $50