A company recently lowered its service performance from 99% product availability to 97% product availability.The change saved the company exactly $1 million 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

Question

Quizplus · Accepted Answer

It is likely that the cost savings from decreasing the service level from 97% to 95% will be less than the $1 million saved from lowering it from 99% to 97%. Therefore, the answer is choice A, less than $1 million.

A Company Recently Lowered Its Service Performance from 99% Product