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Question 2 (12 marks) Stereo Goods is a distributor of videotapes. Video Mart is a...

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Question 2 (12 marks) Stereo Goods is a distributor of videotapes. Video Mart is a local retail outlet which sells blank and recorded videos. Video Mart purchases tapes from Stereo Goods at $100 per tape. Video Mart does not inspect the tapes due to Stereo Goods' reputation for high quality. Annual demand is (320 days to be 6,400 tapes). The purchase-order lead time is 7 days. The following cost data are available: $64 Relevant ordering costs per purchase order Carrying costs per unit per year: Relevant insurance, materials handling, breakage, etc., per year $ 2 Required 1. Determine the economic order quantity (2 marks) 2. Determine the appropriate level of safety stock, assuming stock out cost is $1 per unit and the following estimated demand. (Assume a 10 unit-interval for each safety stock level increments) Total Demand (tapes) during purchase order lead time 120 130 140 150 160 Probability 20% 25% 30% 10% 15% (10 marks)

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