A Product Has a Reorder Point of 260 Units, and Is

Essay

A product has a reorder point of 260 units, and is ordered ten times a year. The following table shows the historical distribution of demand values observed during the reorder period.
$$\begin{array} { | c | c | } \hline \text { Demand } & \text { Probability } \\\hline 240 & .1 \\\hline 250 & .2 \\\hline 260 & .4 \\\hline 270 & .2 \\\hline 280 & .1 \\\hline\end{array}$$
Currently, stockouts are valued at $5 per unit per occurrence, while inventory carrying costs are $2 per unit per year. Should the firm add safety stock?
If so, how much safety stock should be added?