1 If in a perishable product inventory situation the probabi

1. If, in a perishable product inventory situation, the probabilities of demand being 1, 2, 3, or 4 units are 0.3, 0.3, 0.2, and 0.2 respectively, what is the service level if two units are stocked?
a.       0.2.
b.       0.3
c.       0.5.
d.       0.6.
e.       0.8.

2. A company uses 2,000 units of a product each year (constant usage). The product is purchased from a supplier at a unit cost of $4; however, the company must pay the freight from the supplier’s plant. Each unit weighs 5 lbs; the shipping cost is 20 cents per lb. The company estimates the order-processing cost is $25 per order; inventory holding costs are 20 percent per unit dollar cost per year.

The optimal order quantity, Q*, is:

Q* = 610                                               

Q* = 450                                                                

Q* = 316

Q* = 1000

Q* = 520

Solution

Answer to question# 1)

if two units are stocked , then demand of 1 and 2 units both can be serviced

hence the service level = P(1) + P(2)

Service level = 0.3 + 0.3

Service level = 0.6