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Determine the optimal amount of safety stock

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Reference no: EM132595526

Somi Corporation wishes to determine the amount of safety stock that it should maintain for Product D that will result in the lowest cost. The following information is available.

Stock out cost 80 per occurrence

Carrying cost of safety stock 2 per unit

Number of purchase orders 5 per year

The available options open to Somi are as follows:

Units of Safety Stock        Probability of Running Out of Safety Stock

20                                        40%

40                                           20%

50                                           10%

55                                            5%

Required:

Question 1: Determine the optimal amount of safety stock?

Reference no: EM132595526

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