Calculate the amount of safety stock needed to cover demand

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Reference no: EM133279558

Case Scenario: Carrier sells air conditioning units to distributors. Ahead of the upcoming summer, demand probability is 40,000 units (25%), 55,000 units (35%), 70,000 units (25%), and 80,000 units (15%).

Fixed cost of production = $500,000
Variable cost of production per unit = $1,200
Per unit selling price= $1500
Salvage value for unsold products = $900

With an expected demand of 55,000 units for the summer (May-July), a maximum demand of 80,000 units for the summer, and a 2-week lead time, calculate the amount of safety stock needed to cover demand.

Reference no: EM133279558

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