A manufacturer of lawn care equipment has introduced a new product. The anticipa

Question

A manufacturer of lawn care equipment has introduced a new product. The anticipated demand is normally distributed with a mean of 100 and a standard deviation of s = 50. Each unit costs $75 to manufacture and the introductory price is to be $125 to achieve this level of sales. Any unsold units at the end of the season are unlikely to be very valuable and will be disposed of in a fire sale for $25 each. It costs $10 to hold a unit in inventory for the entire seasor wy nits should be anufactured for sale? O 10 34 O 94 O 62 O 71

Explanation / Answer

The Correct Answer is:- The number of units to be produced =94

Explanation:-

Inputs Anticipate demand 100 Standard deviation 50 Unit costs $75 Sales price $125 Disposal value $25 Inventory holding costs $10 Salvage value $15 Cost of understocking $50 Cost of overstocking $60 Outputs Optimal cycle service level 0.4545 Optimal lot size 94.29 Expected profits $2,820 Expected overstock 17.22 Expected understock 22.93

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