PLEASE HELP ME ANSWER THE FOLLOWING QUESTION.
PLEASE SHOW ME WORKING OUT, SO I CAN UNDERSTAND THE QUESTION AND DO SIMILAR ONES LIKE THIS.
Electronics Memos, Inc. (EMI) produces pocket-size micro cassette recorders for
business and professional people, for recording notes and transcribing. These recorders
are sold through retailers nationally.
EMI would like to provide its retailers with guidelines to help them determine what size
orders they should place, what safety stocks to carry, and so forth.
Atypical retailer is open every day. Demand for an average 30-day month is 40 units. The
standard deviation of daily demand is in 4 units. Orders are placed once a week and paid
for at the time arrived. Assume it takes 10 calendar days to receive an order from EMI.
(a) EMI would like to satisfy 98% of customer demands from stock. How much safety
stock would a retailer need to meet this service level? What would be the base stock
(order up to) level?
(b) Assuming that the annual holding cost per unit is $10.00 calculate the total annual
inventory holding cost of the policy in (a).
(c) After evaluating the cost of meeting a 98% service level, some of EMI’s retailers are
protesting that a 95% service level would be more reasonable. How much could be saved
per year by reducing the service level to 95%?
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