Question

Problem 12.45 EQuestion Help Mr. Beautiful, an organization that sells weight training sets, has an ordering cost of $45 for the BB-1 set (BB-1 stands for Body Beautiful Number 1). The carrying cost for BB-1 is $18 per set per year. To meet demand, Mr. Beautiful orders large quantities of BB-1 7 times a year. The stockout cost for BB-1 is estimated to be $15 per set. Over the past several years, Mr. Beautiful has observed the following demand during the lead time t BB-1 Demand Lead Time Probability 02 110 120 0.2 150 0.1 The reorder point for BB-1 is 120 sets. What level safety stock should be maintained r BB-1? The optimal quantity of safety stock which minimizes expected total cost is sets (enter your response. sa whole number) Enter your answer in the answer box and then click Check Answer.

Answer 1

We have,

Reorder point =Expected demand during lead time +Safety stock

Expected demand during lead time =$\sum$ i (Di *Pi)

=100*0.1+110*0.2+120*0.2+130*0.2+140*0.2+150*0.1

=125

So,

Reorder point =125+Safety stock

But given Reorder point =120 sets

So,

Safety stock =Reorder point -125

=120-125

= - 5 sets

Optimal quantity of safety stock that minimizes expected total cost=-5 sets or 0 sets(rounding up)