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

question 55

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 combination of changes in lead-time and service level would result in exactly the same level of safety stock as indicated in the table?

• A) Lead-time drops to 41 days and service level increases to 99%.
• B) Lead-time increases to 18.52 days and service level drops to 92%.
• C) Lead-time increases to 20.54 days and service level drops to 90%.
• D) Lead-time drops to 3.5 days and service level increases to 99.54%.

---

Definitions:

Goodwill

An intangible asset that arises when a business is acquired for more than the sum of its fair value of identifiable assets and liabilities, representing items like reputation or brand value.

Franchisor

The parent company that develops a product or business process and sells the rights to franchisees.

Business Process

A series of steps performed by a group of stakeholders to achieve a concrete goal, typically involving defining, measuring, analyzing, improving, and controlling processes.

Business-Format Franchising

A type of franchising in which the franchisee adopts the franchisor’s entire method of operation.