8. Stock-Out CostsEach stock-out of a product sold by Pingleni Company costs P 2,000 per occurrence. The carrying cost perunit of inventory is P 5 per year and the company orders 1,500 units of product 18 times a year at a cost ofP 200 per order. The probability of a stock-out at various levels of safety stock is:Units of Safety Stock Probability of a Stock-Out050%20030%400600800What is the optimal level of safety stock for Pingleni?a. 200 unitsb. 400 unitsC.d.14%5%1%600 units800 units

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What is the optimal level of safety stock for Pingleni?

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13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter14: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 1DTM

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Question

8. Stock-Out Costs
Each stock-out of a product sold by Pingleni Company costs P 2,000 per occurrence. The carrying cost per
unit of inventory is P 5 per year and the company orders 1,500 units of product 18 times a year at a cost of
P 200 per order. The probability of a stock-out at various levels of safety stock is:
Units of Safety Stock Probability of a Stock-Out
0
50%
200
30%
400
600
800
What is the optimal level of safety stock for Pingleni?
a. 200 units
b. 400 units
C.
d.
14%
5%
1%
600 units
800 units

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