The Winfield Distributing Company Has Maintained an 80% Service Level

question 158

Essay

The Winfield Distributing Company has maintained an 80% service level policy for inventory of string trimmers.Mean demand during lead time is 170 trimmers,and the standard deviation during lead time is 60 trimmers.The annual cost of carrying one trimmer in inventory is $6.The area sales people have recently told Winfield's management that they could expect a $400 improvement in profit (based on current figures of cost per trimmer)if the service level were increased to 99%.Is it worthwhile for Winfield to make this change?

---

Definitions:

Indirect Cost

Expenses not directly tied to a specific product or service, such as overhead costs like utilities or rent.

Cost Object

An object or entity to which costs are allocated and determined, covering items such as services, products, projects, or clients.

Motor Vehicles

Any transportation means that are powered by an internal combustion engine or electric motor and are used for the conveyance of goods or passengers.

Cost Of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including materials and labor.