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A company has average demand of 3 0 units per day. Lead time from the supplier averages seven days. Assume that the combined standard deviation

A company has average demand of 30 units per day. Lead time from the supplier averages seven days. Assume that the combined standard deviation of demand during lead time has been calculated and is equal to 20 units. One unit costs $10 and the inventory carrying cost is 25 percent.
1 standard deviation covers 84.13%
1.04 standard deviations covers 85%
1.28 standard deviations covers 90%
1.65 standard deviations covers 95%
1.96 standard deviations covers 97.5%
2 standard deviations covers 97.72%
2.33 standard deviations covers 99%
3 standard deviations covers 99.86%
6 standard deviations covers 99.99966%
Suppose management decides it wants to offer a 95 percent service level. That is, it is willing to experience a stockout probability of 5 percent during the order cycle. What is the annual carrying cost of this safety stock policy?

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