A product with an annual demand of 1000 units has Co = $25.50 and Ch = $8.

Question:

A product with an annual demand of 1000 units has Co = $25.50 and Ch = $8. The demand exhibits some variability such that the lead-time demand follows a normal probability distribution with µ = 25 and σ = 5.

a. What is the recommended order quantity?

b. What are the reorder point and safety stock if the firm desires at most a 2% probability of stock-out on any given order cycle?

c. If a manager sets the reorder point at 30, what is the probability of a stock-out on any given order cycle? How many times would you expect a stock-out during the year if this reorder point were used?

Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...