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A is corrent. The solutions approach is to compute the total cost for each of the four This answer hoices as illustrated below.  The carrying cost is $2 for each unit of safety stock. The stockout cost per year equals the probability of running out of inventory times $80 per stockout times five orders per year.  The lowest total cost of carrying safety stock and stockouts is $130 [(55 units x $2/unit) + ($80 x 5% x 5 reorders)].  Thus, 55 units of safety stock should be maintained.


B is incorrect. This results in the highest total cost. 
C is incorrect. This results in the third highest total cost. 
D is incorrect. This results in the second highest total cost.