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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?
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