A souvenir shop in downtown San Francisco is open 350 days a year and sells an average of 48$ 6.00

*** Answers and work in Excel please!***

Problem 1 

A souvenir shop in downtown San Francisco is open 350 days a year and sells an average of 48 Golden Gate Bridge T-shirts a day.  The ordering costs are $35 per order.  The annual holding cost per shirt is $2.25.  After careful review, it was determined that the Lead Time Demand (LTD) was normally distributed at 185 T-shirts with a std. deviation of 30 shirts.

  1. Assume that management has specified that no more than 1% risk of a stock out is acceptable.  What should the safety stock be?
  2. What should the reorder point (ROP) be?
  3. What is the annual additional holding cost of maintaining the level of safety stock needed to support the 1% stock out risk?
  4. If management specified that a 2% risk of stock out during lead time would be acceptable, would the safety stock holding costs decrease or increase?
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