Agri-chem Corporation manufactures commercial fertilizer. The manufacturing process requires several inputs including a nitrogen fixer, NFX. The company uses 39,000 units of NFX per year and makes 15 orders per year in economic lot sizes of 2,600 units. The cost to carry a unit of NFX is $32.00. If there is a stockout, a carload of NFX must be purchased at retail from a local supplier. The retail price is $1,650 per order greater than the price from the regular supplier.

Looking at the past order records, it appears that certain safety-stock levels would result in stockouts according to the following schedule

What level of safety stock would result in the least cost to the company?

Transcribed Image Text:

Safety-Stock Quantity Probability of Stockout 0 .60 100. .20 175... .08 250 .04 281