HighLife Corporation has the following information: Average demand = 30 units per day
Average lead time = 40 days
Item unit cost = $45 for orders of less than 400 units
Item unit cost = $40 for orders of 400 units or more
Ordering cost = $50
Inventory carrying cost = 15 percent
The business year is 300 days.
Standard deviation of demand during lead time = 90
Desired service level = 95 percent
What is the safety stock that HighLife Corporation should carry for its desired service level of 95 percent?
1)28 standard deviations cover 90 percent
1)65 standard deviations cover 95 percent
1)96 standard deviations cover 97.5 percent
A)149
B)90
C)86
D)112

Question

Quizplus · Accepted Answer

To calculate the safety stock, we need to use the formula:
Safety stock = Z*sqrt(LT)*sigma
where Z is the number of standard deviations required for the desired service level, LT is the lead time, and sigma is the standard deviation of demand during lead time.
From the given information, we have:
Z = 1.65 (for 95 percent service level)
LT = 40 days
sigma = 90
Substituting these values in the formula, we get:
Safety stock = 1.65 * sqrt(40) * 90 = 149.03
Rounding off to the nearest integer, we get the safety stock as 149. Therefore, the best choice is A.

HighLife Corporation Has the Following Information: Average Demand = 30