Q. The manager at Goodstone Tires, a distributor of tires in Illinois, uses a continuous review policy to manage invento

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Q. The manager at Goodstone Tires, a
distributor of tires in Illinois, uses a continuous review policy
to manage inventory. The manager currently orders 10,000 tires when
the inventory of tires drops to 6,000. Weekly demand for tires is
normally distributed, with a mean of 2,000 and a standard deviation
of 500. The replenishment lead time for tires is two weeks. Each
tire costs Goodstone $40, and the company sells each tire for $80.
Goodstone incurs a holding cost of 25 percent. How much safety
inventory does Goodstone currently carry? At what cost of
understocking is the manager’s current inventory policy justified?
How much safety inventory should Goodstone carry if the cost of
understocking is $80 per tire in lost current and future
margin?