Question: Freeport Corporation finds that demand for surfboards has average demand of 34 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 34 units per day, wit…

by | Jun 13, 2022 | Questions & Answers


Freeport Corporation finds that demand for surfboards has
average demand of 34 units per day, with a standard deviation of 4
units. Lead time from the supplier averages 13 days, with a
standard deviation of 3 days. The item costs $74 and the inventory
carrying cost is 30 percent. Use Table 7-2.

a. Suppose management decides to offer a 95
percent service level; that is, it is willing to experience a
stockout probability of 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 99 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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