A small grocery store sells fresh produce, which it obtains from a local farmer. During the strawberry season, demand for fresh strawberries can be reasonably approximated using normal distribution with a mean of 40 quarts per day and a standard deviation of 6 quarts per day. Excess costs run 35 cents per quart. The grocery orders 49 quarts per day.
a)What is the implied cost of shortage per quart?
b)Why might this be reasonable figure?
2 answers
edwqe
Given daily demand d=40 quarts per day
std dev =6 quarts
Ce= 35 cents
Service level =Cs/(Cs+Ce)
Optimal orders = mean demand + z * std dev
49 = 40 + z*6
=> z=0.6666
from standard normal diistribution table service level will be 0.748
=> Cs=104 cents.
std dev =6 quarts
Ce= 35 cents
Service level =Cs/(Cs+Ce)
Optimal orders = mean demand + z * std dev
49 = 40 + z*6
=> z=0.6666
from standard normal diistribution table service level will be 0.748
=> Cs=104 cents.
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