Suppose that Steve in problem 32 does not want to have to continuously monitor the company’s cash account. He instead would like to do a monthly audit (every 30 days) and then order the appropriate amount of cash each time. If the June monthly audit shows $500 cash on hand, how much cash should Steve order in this review period? How much more safety stock is required to support the periodic review policy? Why is more needed?

DATA FROM PROBLEM 32: 

Steve Carter is CFO of a small temporary labor supplier. Steve is setting up an account to hold cash that the company needs to pay its monthly bills. Cash needs average $10,000 each month with a standard deviation of daily demand of $50. Steve estimates the company’s opportunity cost of capital (the cost to hold cash for a year) at about 30 percent. Adding more cash by taking it from operating funds or short term loans takes one day and costs $50 to process required transactions.