Dunn Cousins, Inc., sells premium beer to grocery stores throughout Long Island. Management uses the economic order quantity formula when it calculates the optimum number of bushels of barley to order. They gathered the following information in order to determine the best possible level of safety stock to carry: mko74

¢ Determine the ordering costs per order that are incurred when management orders 180 bushels at each purchase. Assume 180 bushels is the economic order quantity.

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Cost of a bushel of barley... Annual cost of carrying 1 bushel of barley. Annual requirement for barley Inventory order point. EOQ. Cost of being out of stock.. $3.00 $1.65 5,200 bushels 330 bushels 400 bushels $2.25 per bushel Total usage over a 2-week period is expected to be Total usage (bushels).. 200 240 280 320 360 400 Probability of stockout... .05 .12 .18 .30 .18 820 4401 .12 .05 Required: a Use statistical probabilities to calculate the safety stock which will incur the least costs. b Management wants only a 5% chance of having a stockout; what level should the safety stock be?