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How large will the firm allow its stock-outs

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Question - A firm faces a demand of 40,000 units per month for one of its lines of stock. The firm's cost of holding stock is E2 per unit of average stock per month, and it costs the firm a total of E100 every time it orders and acquires a new shipment of stock. The firm is willing to face stock-outs and the cost of such is E6 per unit of average stock-out per month. Assuming the firm attempts to minimise overall inventory-related costs, how large (approximately) will the firm allow its stock-outs to become before each new stock delivery arrives?

Reference no: EM133053298

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