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Forest Products Corporation manufactures Maquis as one of its agricultural items. The manufacturing process requires several inputs including a nitrogen fixer, NFX. The company

 

Forest Products Corporation manufactures Maquis as one of its agricultural items. The manufacturing process requires several inputs including a nitrogen fixer, NFX. The company uses 39,000 units of NFX per year and orders in economic lot sizes of 2,600 units. The cost to carry a unit of NFX is P24.40. If there is a stockout, a carload of NFX must be purchased at retail from a local supplier. The retail price is P1,650 greater than the price from the regular supplier. Looking at the past order records, it appears that certain safety-stock levels would result in stockouts according to the following schedule: Probability of Stockout 0.50 0.20 0.05 0.01 Safety-Stock- Quantity 0 150 175 250 Required: What level of safety stock would result in the least cost to the company?

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