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A newsstand places and receives its weekly order of Globe magazines on Monday and cannot reorder during the week. Each copy costs $0.90 and sells
A newsstand places and receives its weekly order of Globe magazines on Monday and cannot reorder during the week. Each copy costs $0.90 and sells for $1.50, When the newsstand runs out of copies, the owner knows from past experience that customers will purchase Globe magazines elsewhere, therefore, the estimated goodwill loss for stock-outs is $0.60 per unsatisfied customer. Demand has been remarkably constant, ranging from 7 to 10 copies per week, as shown in the accompanying table. Required annual return on investment is 10%. The relevant insurance, materials-handling, etc., per magazine per year is $13.00. Demand (in copies) Probability of time 10 0.20 0.30 0.10 0.40 Determine the level of safety stock that the newsstand should maintain in order to minimize expected stockout costs and carrying costs. REQUIRED
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