Question: Demand for lunch kits at Target is 20,000 boxes per month. The holding cost is 60 cents per box per year. For each order placed,

Demand for lunch kits at Target is 20,000 boxes per month. The holding cost is 60 cents per box per year. For each order placed, the retailer incurs an ordering cost of $40. The cost of each lunch kit is $3 and sold to consumers at a retail price of $5.

Suppose that the daily demand for lunch kits is normally distributed with an average daily demand of 100 boxes and a standard deviation of 5 lunch kits per day. The lead time for receiving a new order of lunch kits is 9 days. The holding cost is 60 cents per kit per year.

Calculate demand during lead time, the standard deviation of demand during lead time, the risk of stockout, safety stock, and reorder point if the store wants a service level of 95%.

Calculate the annual carrying cost of the safety stock.

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