11 Def at View 16-Screen Custom View *·C | ezto.mhed hm.tpx 10.00 points MC Qu.

Question

11 Def at View 16-Screen Custom View *·C | ezto.mhed hm.tpx 10.00 points MC Qu. 25 HighLife Corporation has the... HighLife Corporation has the following information Average demand 30 units per day Average lead time = 40 days ltem unit cost $45 for orders of less than 400 units hem unit cost $40 for orders of 400 units or more Ordering cost $50 Inventory carrying cost = 15 percent The business year is 300 days Standard deviation of demand during lead time 90 Desired service level 95 percent What is the safety stock that HighLife Corporation should carry for its desired service level of 95 percent? 128 standard deviations cover 90 percent 165 standard deviations cover 95 percent 196 standard deviations cover 975 percent 149 O 86 O 112 References

Explanation / Answer

It is given that Desired Service Level = 95 percent, i.e in stock probability = 0.95

Corresponding Z value for in stock probability 0.95 = NORMSINV ( 0.95 ) = 1.6448 ( I.E. 1.65 as mentioned in te problem)

Therefore , Required Safety stock

= Z value x Standard deviation of demand during lead time

= 1.65 x 90

= 148.5 ( 149 rounded to nearest whole number )

SAFETY STOCK THAT HIGH LIFE CORPORATION SHOULD CARRY FOR THE DESIRED SERVICE LEVEL OF 95 PERCENT = 149

SAFETY STOCK THAT HIGH LIFE CORPORATION SHOULD CARRY FOR THE DESIRED SERVICE LEVEL OF 95 PERCENT = 149

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