A product has a reorder point of 110 units,and is ordered four times a year on average.The following table shows the historical distribution of demand values observed during lead time.
Managers have noted that stockouts occur 30 percent of the time with this policy,and they question whether a change in inventory policy,to include some safety stock,might be an improvement.The managers realize that any safety stock would increase the service level,but they are worried about the increased costs of carrying the safety stock.Currently,stockouts are valued at $20 per unit per occurrence,while inventory carrying costs are $10 per unit per year.What is your advice? Do higher levels of safety stock add to total costs,or not? What level of safety stock is best?
Definitions:
Relevant Exchange Rates
The appropriate exchange rates used in the conversion of foreign currency transactions into the functional currency for reporting purposes.
Fixed Interest Rate
An interest rate on a liability, such as a loan or mortgage, that remains constant for either an agreed period of time or the entire term of the loan.
Functional Currency
The form of money used in the main economic region where a business is active and conducts its dealings.
Net Exchange Differences
The net result of gains or losses on foreign currency transactions and translation of foreign operations, reflecting the impact of exchange rates fluctuations on financial statements.
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