Table 1

SKU	Mean demand (units/month)	Std. Deviation (units/month)	Unit cost ($/unit)	Unit Sale Price ($/unit)
A	15000	2000	$16	$20
B	10000	3000	$20	$23
C	10000	1500	$14	$16

For the data provided in Table 1, suppose the holding cost per unit per month is 3% of the cost of the item, and the backorder cost is 20% of the profit margin per month. The lead time to replenish the toys from the manufacturer in South Eastern China is two months.

Without substitution, the optimal replenishment order quantity for A in units will be closest to:

	5500
	6000
	6500
	7000
	7500

The safety stock for C will be closest to:

	130
	65
	0
	-65
	-130

With these 3 target service levels, for a customer who is willing to substitute easily among the 3 items (i.e. if they cannot find A, they will buy B if available, and so on), the overall probability of a stock-out is closest to:

	10%
	30%
	50%
	70%
	90%

For the same service level requirement and replenishment lead time, you will find the safety stock is the greatest for

	A
	B
	C
	Each of them will have the same safety stock
	Cannot say with the information provided

Without substitution, the optimal replenishment order quantity for C in units will be closest to:

	3500
	4000
	4500
	5000
	5500

The safety stock for A in units will be closest to:

	500
	600
	700
	800
	900

The target service level for B should be closest to:

	30%
	40%
	50%
	80%
	100%

The safety stock for B in units will be closest to:

	150
	75
	0
	-75
	-150

A rational manager, when setting safety stock for a substituting customer, and considering aggregate demand, relative to no substitution, will set the target service level to be:

	Even lower than the smallest of the target service levels across the 3 products
	Even higher than the largest of the target service levels across the 3 products
	The median service level across the 3 products
	The smallest of the target service levels across the 3 products
	The largest of the target service levels across the 3 products

Without substitution, the reorder point for A in units should ideally be closest to:

	10000
	20000
	30000
	40000
	50000

If customers are willing to substitute easily across the three products, and we set the service level as the highest target service level among the three items, the safety stock considering aggregate demand will be closest to:

	1500
	1750
	2000
	2250
	2500

The target service level for A should be closest to:

	10%
	30%
	50%
	60%
	90%

If customers are willing to substitute easily across the three products, but now we set the service level as the lowest target service level among the three items, the safety stock considering aggregate demand will be closest to:

	500
	300
	150
	0
	-150