7 FIN4801 MAY/JUNE 2019 Question 2.2 (6 marks) Hats Pty (Ltd) is a single shop that sells a variety of footwear. The manager of the shop recently reported that due to increased sales after the revamp of the mall where they are situated, the shop is out of stock at times. She estimated the following demand and related probabilities when asked to do so. Demand in lead time (units) Probability Expected value 60 90 120 0.2 12 0.6 54 0.2 24 Expected demand in lead 90 time The cost of placing an order is R500 and the cost of carrying one unit of inventory for a year is R10. The shop sells 5000 units per year. Therefore, the economic order quantity (EOQ) for the shop is 707 units. The average selling price per unit is R300 and the associated cost per unit is R150. Required: Evaluate whether the shop should keep sufficient safety stock on hand to avoid out-of- inventory costs. 7 FIN4801 MAY/JUNE 2019 Question 2.2 (6 marks) Hats Pty (Ltd) is a single shop that sells a variety of footwear. The manager of the shop recently reported that due to increased sales after the revamp of the mall where they are situated, the shop is out of stock at times. She estimated the following demand and related probabilities when asked to do so. Demand in lead time (units) Probability Expected value 60 90 120 0.2 12 0.6 54 0.2 24 Expected demand in lead 90 time The cost of placing an order is R500 and the cost of carrying one unit of inventory for a year is R10. The shop sells 5000 units per year. Therefore, the economic order quantity (EOQ) for the shop is 707 units. The average selling price per unit is R300 and the associated cost per unit is R150. Required: Evaluate whether the shop should keep sufficient safety stock on hand to avoid out-of- inventory costs