1. An optics retailer has determined that its reorder point for eyeglass frames is 50 units. Its inventory carrying cost per frame per annum is $5 and lost sales cost is $40 per frame. The optimum number of orders per year is decided as 6.

The firm has experienced the following probability distribution for demand during lead time which is 1 week:

Demand During Lead Time

Number of units 30 40 50 60 70

Probability 0.2 0.2 0.3 0.2 0.1

1. How much safety stock should the retailer keep for a CSL of 95%? Calculate the cost of lost sales and inventory if the company decides to stick to this SS? Remember the reorder point level.
2. Calculate expected lost sales and inventory costs during lead time for SS=10 and SS=0. What is the customer service level for SS=10?

URGENT PLSS