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$7\mathrm{.}14$

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Problem $7-13($Algo$)$

Talbot Industries is evaluating its service level policy for a product that is considered critical to customers. Demand for the item averages $220$ units per day and the lead time from the supplier of the item averages $4$ days. An analysis of demand and lead time patterns has shown that the standard deviation of demand during lead time is $230$ units. The existing service level policy allows for a stockout probability of $15$ percent during the replenishment cycle. Marketing managers claim that the item is so critical that the firm should carry two standard deviations of safety stock. Use Table $7-2.$

If the item cost is $$110$ and Talbot$$s inventory carrying cost is $20$ percent, what is the incremental inventory carrying cost of following the suggestion of the marketing managers?