Question: The company is considering the previous policy on inventory. Management estimates the carrying cost of inventory to be $65.00 per unit. However, the sales department is complaining that the company is losing money by having inadequate inventory levels. They have provided you with the following information.
- Safety stock of zero, the current situation, costs $40,000 of profits.
- Safety stock of 400 units would reduce this cost to $10,000.
- Should the company change policy on safety stocks? Why?