Burger Prince buys top-grade ground beef for $.80 per pound. A large sign over t

Question

Burger Prince buys top-grade ground beef for $.80 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 50 cents per pound. Four hamburgers can be prepared from each pound of meat. Burgers sell for 65 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 32 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 b

Explanation / Answer

Cost of Understocking, Cu = (65-50) = 15 cents per burger, since 1 pound beef makes 4 burgers, Cu = 60 cents per pound of beef

Cost of overstocking , Co = (0.80 - 0.50) = 30 cents per pound of beef

Optimal service level = Cu / (Cu + Co) = 60 / 90 = 66.7%

Z-score for p( 0.667) = 0.43

Daily order Quantity = Mean + Z * Std. deviation

= 387 + 0.43 *32 = 387 + 13.76 = 400.76 pounds

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