Burger Prince buys top-grade ground beef for $1.00 per pound. A large sign over
ID: 2748104 • Letter: B
Question
Burger Prince buys top-grade ground beef for $1.00 per pound. A large sign over the entrance guarantees that the meat is fresh daily. Any leftover meat is sold to the local high school cafeteria for 80 cents per pound. Four hamburgers can be prepared from each pound of meat. Burgers sell for 60 cents each. Labor, overhead, meat, buns, and condiments cost 50 cents per burger. Demand is normally distributed with a mean of 387 pounds per day and a standard deviation of 54 pounds per day. What daily order quantity is optimal? (Hint: Shortage cost must be in dollars per pound.) (Round your answer to 1 decimal place.) Use Table.
Optimal daily order quantity = __________________
Explanation / Answer
The cost of underestimating the demand is Cu and cost of overestimating demand is Co Cu = ($0.60 - $0.50)*4 = $0.40 Co = $1 - $0.80 = $0.20 Service Level = Cu / (Cu + Co) = 0.40 / (0.40 + 0.20) = 0.40/0.60 = 0.6667 Z Value at above service level = 0.430727 Optimal Order quantity = Mean + Z Value * Std Deviation = 387 + 54 * 0.430727 = 387 + 23.259 = 410
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