Cooper Company has average demand of 50 units per day. Lead time from the supplier averages 20 days. The combined standard deviation of demand during lead time is 20 units. The item costs $75 and inventory carrying cost is 24%. Answers to the next two questions are based on this information.1 standard deviation covers 84.13%1.04 standard deviations covers 85%1.28 standard deviations covers 90%1.65 standard deviations covers 95%1.96 standard deviations covers 97.5%2 standard deviations covers 97.72%2.33 standard deviations covers 99%3 standard deviations covers 99.86%6 standard deviations covers 99.99966%Suppose you tell management at Cooper Company (in the above two questions) it should raise safety stock to the six sigma level. If Cooper decides to do this, it will incur an additional
inventory carrying cost of approximately how much?
A. $2,160
B. cannot be determined
C. $234
D. $1,566
Answer: D
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