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    Optimal reorder level and expected safety stock

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    The probability distribution of demand during lead time of a certain product is given below.

    Demand During Lead Time Probability
    240 0.05
    260 0.10
    280 0.20
    300 0.30
    320 0.20
    340 0.10
    360 0.05

    The following additional data is available:
    Cost per unit = $10
    Delivery Charges per unit = $1.50
    Selling price per unit = $19
    Salvage value = $7 per unit

    a) Determine the optimal reorder level.
    b) Determine the expected safety stock.
    c) What salvage value will increase the reorder level to 340 units?

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    https://brainmass.com/business/finance/optimal-reorder-level-expected-safety-stock-77775

    Solution Preview

    a) Ce = 10+1.5-7 = $ 4.5 /unit
    Cs = 19-10-1.5 = $7.5 /unit

    SL = Cs/(Cs+Ce) = 0.63. ...

    Solution Summary

    Formula and computation given.

    $2.19

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