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NEW QUESTION: 1
When a specified level of safety stock is carried for an item in inventory, the average inventory level for that item:
A. Decreases by the amount of the safety stock.
B. Is one-half the level of the safety stock.
C. Increases by the amount of the safety stock.
D. Increases by one-half the amount of the safety stock.
If there is no safety stock, the average level of inventory will be one-half of the economic order quantity. For example, if the EOQ is 500, the basic model predicts that the average inventory level will be 250. The company will have 500 units immediately after a purchase and zero immediately before the receipt of the next purchase replenishment is assumed to be instantaneous). However, safety stock increases the average inventory level by the amount of the safety stock. The modified EOQ model assumes that safety stock will never be used.
Thus, if a safety stock of 100 is carried by the company in the example, the average inventory level will increase to 350. Inventory will be 600 units immediately upon receipt of a purchase and 100 units immediately before the receipt of the next purchase.
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