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A Company Has Average Demand of 30 Units Per Day

Question 39

Multiple Choice

A company has average demand of 30 units per day. Lead time from the supplier averages 7 days. Assume that the combined standard deviation of demand during lead time has been calculated and is equal to 20 units. One unit costs $10 and the inventory carrying cost is 25 percent. A company has average demand of 30 units per day. Lead time from the supplier averages 7 days. Assume that the combined standard deviation of demand during lead time has been calculated and is equal to 20 units. One unit costs $10 and the inventory carrying cost is 25 percent. Suppose management decides it wants to offer a 95 percent service level. That is, it is willing to experience a stockout probability of 5 percent during the order cycle. What is the annual cost of this safety stock policy? A) $82.50 B) $87.50 C) $115.00 D) $62.50 Suppose management decides it wants to offer a 95 percent service level. That is, it is willing to experience a stockout probability of 5 percent during the order cycle. What is the annual cost of this safety stock policy?


A) $82.50
B) $87.50
C) $115.00
D) $62.50

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