You are the financial manager of BETA Company which sells 5,400 of phone batteries per year, and places orders for 1,200 of metals. Moreover, the financial analyst estimates a 50% probability of no shortages in each cycle, and the probability of inventory shortages of 100, 200, and 300 units is 0.25, 0.15, and 0.10, respectively. The carrying cost per unit per year is $3. The stockout cost is $7. The Company has no safety stocks.

What is the optimal level of safety stock should you recommend? You plan to consider safety stock of 0, 100, 200, and 300 units. Answer using this formula: Stockout costs = (Stockout cost* possible units of shortage* probability of shortage* number of orders per year)

Answer rating: 100% (QA)

Answer According to Glven data Optimal safety stock to be maintained would ... View the full answer