Authentic Thai rattan chairs are delivered to Gary Schwartz\'s chain of retail s

Question

Authentic Thai rattan chairs are delivered to Gary Schwartz's chain of retail stores, called The Kathmandu Shop, once a year. The reorder point, without stock, is 200 chairs. Carrying cost is $30 per unit per year, and cost of a stockout is $60 per chair per year. Given the demand probabilities during the lead time, how much safety should be carried?

0           0.2

100       0.2

200        0.2

300         0.2

400          0.2

A.) The optimal quantity of safety stock which minimizes expected total cost is ___ units? Enter response as a whole number.

Explanation / Answer

Expected demand during the lead time is 200 and variance 20002 and s.d. 141.4214. Therefore reorder point is 200 units.

Carrying cost is $30 whereas Stockout cost is $60, therefore critical ratio = 30/(30+60) =1/3=.3333

Looking at the comulative probability, the quantity of safety stock which minimizes expected total cost is 100 units. Minimum level of quantity having comulative probability more than critical ratio.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.