What level of safety stock should be maintained

Reference no: EM13185782

The purchasing manager for a firm is trying to determine what the safety stock should be for a particular product. She has developed the following table, which gives the distribution of demand during the lead-time and the probabilities.

Demand during lead time / Probability

40 / .20

50 / .25

60 / .25

70 / .20

80 / .10

The carrying cost is $5 per unit per year, the ordering cost is $30 per order, and the stockout cost is $40 per unit. The reorder point is 60 units, and 6 orders are placed each year. What level of safety stock should be maintained?

Reference no: EM13185782

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