The annual demand for a company's product is 3,750 units, and monthly demand varies from 200 to 400 units with the following probability of demand:
200 units have a 25 percent probability
300 units have a 50 percent probability
400 units have a 25 percent probability
The EOQ model provides an optimal order quantity of 250 units.The opportunity costs of being out of stock are $2 per unit, with a carrying cost of $13 per unit, and the reorder point is 250 units.Required:
a.Prepare a table showing stockouts, expected stockout costs, related carrying costs, and total costs, at each level of demand if the selected safety stocks are: 0, 50, 100 and 150.
b.What is the best level of safety stock to carry?

Question

Quizplus · Accepted Answer

The Answer of The annual demand for a company's product is 3,750 units, and monthly demand varies from 200 to 400 units with the following probability of demand:
200 units have a 25 percent probability
300 units have a 50 percent probability
400 units have a 25 percent probability
The EOQ model provides an optimal order quantity of 250 units.The opportunity costs of being out of stock are $2 per unit, with a carrying cost of $13 per unit, and the reorder point is 250 units.Required:
a.Prepare a table showing stockouts, expected stockout costs, related carrying costs, and total costs, at each level of demand if the selected safety stocks are: 0, 50, 100 and 150.
b.What is the best level of safety stock to carry?

The Annual Demand for a Company's Product Is 3,750 Units