Common Scents, Inc., makes various scents for use in the manufacture of food products. Although the company does maintain a safety stock, it has a policy of maintaining "lean" inventories, with the result that customers sometimes must be turned away. In an analysis of the situation, the company has estimated the cost of being out of stock associated with various levels of safety stock:

Carrying costs are $0.65 per gallon per year. What is the best level of safety stock for the company?

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Present safety stock level New safety stock level1 New safety stock level 2 New safety stock level 3 New safety stock level 4 New safety stock level5 LEVEL OF SAFETY STOCK (in gallons) 5,000 7,500 10,000 12,500 15,000 17,500 ANNUAL COST OF STOCKOUTS $26,000 14,000 7,000 3,000 1,000