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Cross Company
Cross Company
PRACTICE PROBLEM
The Cross Company wishes to determine the amount of safety stock that it should maintain for
Product 1 to result in the lowest cost. The following information is available:
10 50%
30 30%
50 10%
55 5%
REQUIRED:
Determine the number of units of safety stock that will result in the lowest cost.
SOLUTION:
1.
Safety Carrying Carrying Stockout Number Probabil Stockout Total
Stock cost per Costs costs per of ity Costs Safety
unit occurence Occuren Stock
ces
10 P2 P20 P80 5 50% P200 P220
30 2 60 80 5 30% 120 180
50 2 100 80 5 10% 40 140
55 2 110 80 5 5% 20 130
The number of units of safety stock that will result in the lower cost is 55 units because
it has the lowest safety stock which is P130.