ABC Ltd has determined that its reorder point is 50 units when there are no safety stocks. Its carrying cost per unit per year is $ 5 and stock out cost is $ 40 per unit a customer misses.
ABC Ltd has experienced probability distribution for inventory demand during lead-time is shown below;
No. of units Probability
30 0.20
40 0.20
50 0.30
60 0.25
70 0.05
1.00
Required
The optimal No. of orders is 6. What is the optimal level of safety stock and the associated re-order point?