Scenario 9.5 Cranium,Inc. ,Purchases Term Papers from an Overseas Supplier Under a Under

Scenario 9.5
Cranium,Inc. ,purchases term papers from an overseas supplier under a continuous review system.The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day.It costs $60 to process each order and there is a five-day lead-time.The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level.Cranium operates 200 days per year.A normal distribution table is appended to this exam.
-Use the information in Scenario 9.5.What is the cost of holding the safety stock necessary to maintain the 98% service level?

A) less than or equal to $30
B) greater than $30 but less than $40
C) greater than $40 but less than $50
D) greater than $50

Correct Answer:

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