Cooper Company has an average demand of 50 units per day. Lead time from the supplier averages 20 days. The combined standard de
1 answer:
Answer:
The annual inventory carrying cost of the safety stock = $594
Explanation:
Given that:
The average daily demand (d) = 50 units / day
The lead time (LT) = 20 days
The combined standard deviation of demand lead time = 20 units.
The item cost = $75
The inventory carrying cost = 24% of the item cost
i.e. (24/100) × 75 = $18 of the item cost
Let assume that the management of the company wants to offer a service level of 95%.
Then the z-value that relates to 95% confidence interval level = 1.65
So; the safety stock relating to the 95% service level =
= 1.65 × 20
= 33 units
Now:
The annual inventory carrying cost of the safety stock = Safety stock × Inventory carrying cost.
= 33 × $18
= $594
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