Scenario 9.11
The Hastings Company is a nation-wide wholesaler for small electronic devices.One of its most popular items is a calculator,the "Whizz-Bang 1100".Hastings's demand,lead time and cycle service requirements for the W-B 1100 are as follows:
Demand = 25,000 units/year
Number of weeks per year = 50 weeks
Standard deviation of weekly demand = 100 units
Average lead time = 6 weeks
Standard deviation of lead time: 2 weeks
Cycle-service level = 85%
Hastings uses a continuous review system to control inventory.
A normal distribution table is appended to this exam.
-Use the information in Scenario 9.11.What safety stock should Hastings use for the Whizz-Bang 1100?

Question

Quizplus · Accepted Answer

To calculate the safety stock, we need to use the following formula:

Safety stock = Z(α/2) x σLT x (D/52)1/2

Where: 
Z(α/2) = the Z-value from the normal distribution table for the desired cycle-service level 
σLT = the standard deviation of lead time 
D/52 = the average demand per week

Plugging in the numbers: 
Z(α/2) = 1.44 (from the normal distribution table for 85% cycle-service level) 
σLT = 2 weeks 
D/52 = 25,000/52 = 481

Safety stock = 1.44 x 2 x (481)1/2 = 776 units

Therefore, the safety stock should be greater than 500 units but less than or equal to 1,500 units, making choice C the best option.

Scenario 9.11 The Hastings Company Is a Nation-Wide Wholesaler for Small Electronic