The company Litely sells 1,350 electrical switches per year and at the same time, it makes orders of 300 switches. They don’t have any safety stock. Litely calculates that they have a 50% of probabilities of not having stockout in each cycle. The probability of stockout of 5, 10 and 15 units is 0.2, 0.15 and 0.15 respectively. It has been calculated a production cost per unit and year of 5 dollars and of 6 dollars in case of stockout (3 dollars of profit loss per switch and additionally 3 more dollars of future sold loss). Which should Litely use as the level of safety stock for this product? (Consider a safety stock of 0, 5, 10 and 15 units).
The company Litely sells 1,350 electrical switches per year and at the same time, it makes orders of 300 switches. They don’t have any safety stock. Litely calculates that they have a 50% of probabilities of not having stockout in each cycle. The probability of stockout of 5, 10 and 15 units is 0.2, 0.15 and 0.15 respectively. It has been calculated a production cost per unit and year of 5 dollars and of 6 dollars in case of stockout (3 dollars of profit loss per switch and additionally 3 more dollars of future sold loss). Which should Litely use as the level of safety stock for this product? (Consider a safety stock of 0, 5, 10 and 15 units).
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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The company Litely sells 1,350 electrical switches per year and at the same time, it makes
orders of 300 switches. They don’t have any safety stock. Litely calculates that they have a 50%
of probabilities of not having stockout in each cycle. The probability of stockout of 5, 10 and 15
units is 0.2, 0.15 and 0.15 respectively. It has been calculated a production cost per unit and
year of 5 dollars and of 6 dollars in case of stockout (3 dollars of
additionally 3 more dollars of future sold loss). Which should Litely use as the level of safety
stock for this product? (Consider a safety stock of 0, 5, 10 and 15 units).
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