Question 3

Next Gen is an electronics retailer which sells innovative technology products. One of its popular products is a virtual reality (VR) headset called Daydream, whose weekly demand is normally distributed with mean 300 and standard deviation 100.

Next Gen buys virtual reality headsets from Dell and it uses the periodic-review base-stock policy to manage its VR headset inventory. Next Gen reviews its inventory and places an order at the end of every week. It takes 3 weeks for an order to be delivered. The unit purchasing cost of a headset is $400. Next Gen wants to have sufficient safety stock so that its service level is 92%. The annual inventory holding cost per a VR headset is 50% of its unit purchasing cost.

(i) How much safety stock should Next Gen hold for the VR headset? _______ What is the annual holding cost for this safety stock? _______ (ii) Please calculate the target inventory level (i.e., base-stock level B) for the VR headset in Next Gen. _______

Table for z-values

Probability	z-value	Probability	z-value
0.99	2.326	0.89	1.227
0.98	2.054	0.88	1.175
0.97	1.881	0.87	1.126
0.96	1.751	0.86	1.080
0.95	1.645	0.85	1.036
0.94	1.555	0.84	0.994
0.93	1.476	0.83	0.954
0.92	1.405	0.82	0.915
0.91	1.341	0.81	0.878
0.90	1.282	0.80	0.842