Operations Management: Other Operations Management Problems – #285

Question: Mr. Beautiful, an organization that sells weight training sets, has an ordering cost of $40 for the BB- l set. (BB-1 stands for Body Beautiful Number 1.) The car­rying cost for BB-1 is $5 per set per year. To meet demand, Mr. Beautiful orders large quantities of BB- l seven times a year. The stock out cost for BB-1 is esti­mated to be $50 per set. Over the past several years, Mr. Beautiful has observed the following demand during the lead time for BB-1:

Demand during Lead Time Probability

40 0.1
50 0.2
60 0.2
70 0.2
80 0.2
90 0.1

The ROP for BB-1 is 60 units. What level of safety stock should be maintained for BB-1?


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