Question: Freeport Corporation finds that demand for surfboards has average demand of 17 units per day, wit…

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Jun 13, 2022

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Question: Freeport Corporation finds that demand for surfboards has average demand of 17 units per day, wit…

by | Jun 13, 2022 | Questions & Answers



Freeport Corporation finds that demand for surfboards has average
demand of 17 units per day, with a standard deviation of 2 units.
Lead time from the supplier averages 10 days, with a standard
deviation of 1 days. The item costs $57 and the inventory carrying
cost is 20 percent. Use Table 7-2.


a. Suppose management decides to offer a 97.5
percent service level; that is, it is willing to experience a
stockout probability of 2.5 percent during the order cycle. How
much safety stock should be carried? (Do not round intermediate calculations.
Round up your answer to the next whole number.)


b. How much is the annual inventory carrying cost
of the safety stock because of this decision? (Round your answer to the nearest
dollar amount.)


c. You decide that you want this company to give
better service to its customers. You decide that a 97.72 percent
service level is appropriate. How much safety stock must be carried
to offer this service level? (Do not round intermediate calculations.
Round up your answer to the next whole number.)


d. What is the additional inventory
carrying cost that will be incurred on this item because of your
decision to increase the service level? (Round your answer to 2 decimal
places.)


.


e. What will the reorder point be for the company
if your decision is implemented? (Round your answer to the nearest whole
number.)

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