The following information is available relating to the stock-out of a firm:
The selling price of each unit is Rs 200. The carrying costs are Rs 19 per unit. The stock-out costs are Rs 50 per unit.
(i) If the firm wishes to never miss a sale, what should be its safety stock? What is the total cost associated with this level of safety stock? What are the associated costs with safety stock of 300, 200, 100 and 20 units, respectively?
(ii) What is the optimal safety stock level?
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