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Academic MBA Question:

Q: Vashi pharmaceuticals, Inc., handles a variety of health products. A weight reduction product costs the company $2.95 per unit. The annual holding cost rate is 20 percent. Using an EOQ model, they determined that an order quantity of 300 units should be used. The lead time to receive an order is one week, and the demand is normally distributed with a mean of 150 units per week and a standard deviation of 40 units per week. Calculate cycle stock and safety stock point if the firm is willing to tolerate a 1% chance (Z0.99 = 2.32) of a stockout during an order cycle. Also calculate the total cost of inventory.


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