Famous Butter Made Cookies (FBMC), has gone regional with their freshly baked co
ID: 334799 • Letter: F
Question
Famous Butter Made Cookies (FBMC), has gone regional with their freshly baked cookies. FBMC makes great cookies, but their inventory management is another matter. So, FMBC hired you to make better stocking decisions. Each dozen cookies sells for $10.00 and costs $7.00 to produce, market, and ship. However, unlike the prior case, cookies that go unsold after one day are no longer marketable due to a ban on the toxic preservative that was previously used. Hence, any cookies that remain unsold after a day are thrown away. Assume the average daily demand (µ) is 2400 cookies & and the daily standard deviation (?) is 200 cookies. The "marginal analysis" table based on the expert knowledge of the CEO has also been shown to be less accurate than use of the standard normal distribution assumption of the basic newsvendor model. Your task: find the optimal stocking level based on the use of the standard normal distribution formula in a newsvendor context as discussed in class. Use Excel to find z values.
Explanation / Answer
Cost = $7
Price = $10
Salvage value = $0
Mean = 2400
Standard deviation = 200
Overage cost Co = Cost – Salvage value = 7– 0 = 7
Underage cost Cu = Price – Cost = 10 – 7= 3
Service level = Cu / (Cu+Co) = 3/(3+7) = 3/10 = 0.3
Z = -0.52 ( NORMSINV(0.375) IN EXCEL)
Optimal stocking level = Mean + Z*Standard deviation = 2400 + (-0.52*200) = 2296
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.