EOQ, uncertainty, safety stock, reorder point. (CMA, adapted) The fitarr Company dis¬

tributes a wide range of electrical products. One of its best-selling items is a standard electric motor. The management of the $tarr Company uses the EOQ decision model to determine the optimal number of motors to order. Management now wants to deter- IIWENT juseinTtim^and mine how much safety stock to hold.

The Starr Company estimates annual demand (300 working days) to be 30,000 electric motors. Using the EOQ decision model, the company orders 3,000 motors at a time. The lead time for an order is five days. The annual carrying costs of one motor in safety stock are $12. Management has also estimated that the stockout costs are $24 for each motor they are short.
The Starr Company has analyzed the demand during 200 past reorder periods. The records indicate the following patterns:
Demand During Number ofTimes Lead Time Quantity Was Demanded 440 460 480 500 520 540 560 6 12 16 130 20 10 _6 200 806 Required 1. Determine the level of safety stock for electric motors that the Starr Company should maintain in order to minimize expected stockout costs and carrying costs. When comput¬
ing carrying costs, assume that the safety stock is on hand at all times and that there is no overstocking caused by decreases in expected demand. (Consider safety stock levels of 0, 20, 40, and 60 units.)
^ 2. What would be the Starr Company’s new reorder point?
/)/ 3. What factors should the Starr Company have considered in estimating the stockout costs?