QUESTION FOUR (a) Explain what stock-out is and by considering its components, explain how it can be estimated. (6 marks) (b) Using the EOQ Model. An inventory manager has established the EOQ for a product to be 4,800 units with a mean daily usage of 80 units. The company works 300 days in a year. Lead-time is known to be 5 days while holding cost is estimated to be sh. 15 per unit per annum and the carrying cost is estimated to be sh. 30,000. If an item is missing in stock, an extra cost of sh. 50 is incurred so as to reduce customer disappointment. From past records, the manager finds the demand during lead time over the last 50 re-order periods has been as follows: Demand during Lead time (Units) Probability 250 0.02 300 0.06 350 0.12 400 0.36 450 0.20 500 0.14 550 0.06 600 0.04 Required: O The optimal level of safety stock and the associated reorder point (11 marks) (ii) The Probability of disappointing a customer given the answer in part (1) above (2 marks) (iii) The total cost associated with the optimal policy. (4 marks) (iv) Other than using past records, how else can probabilities of lead-time be estimated (2 marks) [Total=25 Marks]