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Each stock out of a product sold by Arroyo Co. costs P1,750 per occurrence. The company's carrying cost per unit of inventory is P5 per year, and the company orders 1,500 units of product 20 times a year at a cost of p100 per order. The probability of a stock out at various levels of safety stock are;
Unit of Safety Stock Probability of Stock Out
0 0.50
100 0.30
200 0.14
300 0.05
400 0.01
Question 1: What is the optimal safety stock level?
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