Authentic Thai rattan chairs are delivered to Gary Schwartz\'s chain of retail s
ID: 2746684 • Letter: A
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.