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    Standard deviation: What is the statistical safety stock?

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    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.

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    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