What is the annual holding cost for carrying safety stock

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Reference no: EM132285005

BestTech is a local electronics store. You are asked to determine the optimal ordering policy for one of its most popular tablets, that is, WarpSpeed tablet. The weekly demand for this tablet is normally distributed with a mean of 75 units and standard deviation of 10 units. The store follows a periodic review inventory policy: it reviews its inventory and places an order at the beginning of each week. BestTech orders tablets from its supplier at a unit cost of $200. The annual cost of holding a tablet in the store is equal to 30% of its unit cost. It takes 2 weeks to receive a delivery. Assume that a year has 52 weeks. Note: z values corresponding to standard normal probabilities can be found in the table at the beginning of page 2.

a. Compute the safety stock (number of tablets) needed to maintain a service level of 95%.

b. What is the annual holding cost for carrying this safety stock?

c. Compute the average on-order/in-transit inventory level. d. How much additional safety stock would be needed if BestTech wishes to increase its service level from 95% to 98%? What is the additional cost associated with this increase in the safety stock?

Table for z-values Probability z-value Probability z-value 0.99 2.326 0.89 1.227 0.98 2.054 0.88 1.175 0.97 1.881 0.87 1.126 0.96 1.751 0.86 1.080 0.95 1.645 0.85 1.036 0.94 1.555 0.84 0.994 0.93 1.476 0.83 0.954 0.92 1.405 0.82 0.915 0.91 1.341 0.81 0.878 0.90 1.282 0.80 0.842

Reference no: EM132285005

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