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 standard deviation of demand throughout the five-day lead-time period?
A) about 45 units
B) about 67 units
C) about 103 units
D) about 200 units

Question

Quizplus · Accepted Answer

The standard deviation of demand throughout the five-day lead-time can be calculated using the formula: 
Standard deviation of lead time demand = (Average daily demand * Lead time^0.5) = (300 * 5^0.5) = 300 * 2.236 = 672.8 ≈ 67 units. Therefore, the correct answer is (B) about 67 units.

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