QUESTION 1- INVENTORY MANAGEMENT - 25 Marks

Part 1 (10 Marks)

Mrs. Scale is the Inventory Manager for Honey Bun Ltd. She has compiled the following data on the small set of products that comprise the specialty bread division. Perform ABC analysis on the data. Which products do you suggest Mrs. Scale keep the tightest control over? Explain.

Product CODE	Annual Demand	Unit Cost
AA10	150	$650
BC20	112	$95
DF30	45	$50
CC40	225	$150
XF50	150	$75

Part 2 (15 Marks)

Tobacco is shipped from North Carolina to a cigarette manufacturer in Cambodia once a year. The reorder point, without safety stock, is 200 kilos. The carrying cost is $15 per kilo per year, and the cost of stock out is $70 per kilo per year. Given the following demand probabilities during the lead time, how much safety stock should be carried?

Demand during lead time (kilos)	Probability
0	0.1
100	0.1
200	0.2
300	0.4
400	0.2

Given the above demand probabilities during lead time:

1. How much safety stock should be carried? (10 marks)
2. Hence state the Reorder point (5 marks)