A product has a reorder point of 110 units, and is ordered four times a year. The following table Shows the historical distribution of demand values observed during the reorder period.
Demand Probability
100 0.3
110 0.4
120 0.2
130 0.1
Managers have noted that stock outs occur 30 percent of the time with this policy, and question
whether a change in inventory policy, to include some safety stock, might be an improvement. The
managers realize that any safety stock would increase the service level, but are worried about the
increased costs of carrying the safety stock. Currently, stock-outs are valued at $20 per unit per
occurrence, while inventory carrying costs are $10 per unit per year. What is your advice? Do higher
levels of safety stock add to total costs, or not? What level of safety stock is best

Explanation:

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of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans. 

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.