Scenario 9.7 Cranium, Inc., Purchases Term Papers from an Overseas Supplier Under

question 136

Multiple Choice

Scenario 9.7
Cranium, Inc., purchases term papers from an overseas supplier under a continuous review system. The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day. It costs $60 to process each order and there is a five-day lead-time. The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level. Cranium operates 200 days per year.
-Use the information in Scenario 9.7. What is the annual cost of holding the safety stock necessary to maintain the 98% service level?

• A) less than or equal to $30
• B) greater than $30 but less than $40
• C) greater than $40 but less than $50
• D) greater than $50

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Definitions:

Mathematical Difference

The result of subtracting one quantity from another.

Range

The difference between the largest and smallest values in a dataset, a measure of spread or variability.

Hypotheses

Theoretical statements set forth for experimentation that predict a possible relationship between two or more variables, which may include both null and alternative hypotheses.

Interquartile Range

A measure of statistical dispersion, equal to the difference between the upper and lower quartiles, representing the middle 50% of the data.