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Mr. Beautiful, an organization that sells weight training sets, has an ordering cost of $40 for the BB-1 set. (BB-1 stands for Body Beautiful Number 1.) The carrying cost for BB-1 is $5 per set per year. To meet demand, Mr. Beautiful orders large quantities of BB-1 seven times a year. The stock out cost for BB-1 is estimated to be $50 per set. Over the past several years, Mr. Beautiful has observed the following demand during the lead time for BB-1:
Demand During Lead Time
Probability
40
.1
50
.2
60
70
80
90
1.0
The reorder point for BB-1 is 60 sets. What level of safety stock should be maintained for BB-1?
As the available capacity decreases with respect to the average demand it may be impossible to satisfy realized demand.
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