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Standard deviation: What is the statistical safety stock?

Question 23: If the standard deviation of demand is six per week, demand is 50 per week, and the desired service level is 95%, approximately what is the statistical safety stock?:

a) 8 units
b) 10 units
c) 16 units
d) 64 units
e) cannot be determined without lead time data

Question 30: A fabrication company wants to increase capacity by adding a new machine. The firm is considering proposals from vendor A and vendor B. The fixed costs for machine A are $90,000 and for machine B, $75,000. The variable cost for A is $15.00 per unit and for B, $18.00. The revenue generated by the units processed on these machines is $21 per unit. If the estimated output is 5000 units, which machine should be purchased?:

a) machine A
b) machine B
c) either machine A or machine B
d) no purchase because neither machine yields a profit at that volume
e) purchase both machines since they are both profitable

Please select the right answers and show explanation on how you have calculated it.

Solution Preview

approximately what is the statistical safety stock?:

a) 8 units
b) 10 units
c) 16 units
d) 64 units
e) cannot be determined without lead time data

= 10 Units ( z value for 95% service level = 1.64 ; multiply z by 6 to get 10)

Question 30: A fabrication company wants to ...

Solution Summary

Using simple and brief calculations, this solution calculates the statistical safety stock as well as a determination of which machine should be purchased based off of output, contribution and fixed costs.

$2.19