The annual demand for a certain item is N60052 Suppose the a

The annual demand for a certain item is N(600,52). Suppose the annual stock level is 600. If demand is less than 600, the annual holding cost of the leftover items is $165 per item. If the demand is greater than 600, then the loss of good will $300 per item. Use Excel and PHStat and clearly interpret your analysis.

a. Determine the expected annual cost of shortages or surpluses of this product.

b. Compute the standard deviation of costs.

c. Comment on the stock level of 600. Can you determine the appropriate stock level that minimizes expected cost?

Solution