The manager at Good stone Tires, a distributor of tires in Illinois, uses a continuous review policy to manage inventory. The manager currently orders 12,000 tires when the inventory of tires drops to 6,000. Weekly demand for tires is normally distributed, with a mean of 2,000 and a standard deviation of 400. The replenishment lead time for tires is two weeks. Each tire costs Good stone $40, and the company sells each tire for $80. Good stone incurs a holding cost of 25 percent. 

1. How much safety inventory does Good stone currently carry? 
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3. At what cost of understocking is the manager's current inventory policy justified? 
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5. How much safety inventory should Good stone carry if the cost of understocking is $80 per tire in lost current and future margin?

Answer rating: 100% (QA)

To calculate the safety inventory that Good Stone Tires currently carries we need to consider the demand during the lead time In this case the repleni... View the full answer