Bada Bing Bada Boom Candy, Inc. supplies the milk chocolate to candy makers thro

Question

Bada Bing Bada Boom Candy, Inc. supplies the milk chocolate to candy makers throughout the mid-western states. After tracking your customers’ behaviors, you find that 43% of these companies like your chocolate enough that they will wait until you can fill the order--even if it means a delay. Twenty-nine percent need the chocolate for immediate production and will make a one-time buy somewhere else. They realize that your product is superior and will come back. However, 28% of your customers get put off by not having the product and will permanently switch to another supplier.

• The added processes and delivery fees to get late deliveries out run around $500 per incident.
• An average chocolate order is about 200 lbs. You charge $22 per pound. Your profit margin is 13%.
• The lifetime stream of profits for a customer who permanently defects is estimated to be $254,096.

What is the expected cost per stockout, rounded to the nearest dollar?

$71,528

$78,768

$75,344

$66,997

None of the above

Need explain not just answer for this question

Thanks

$71,528

$78,768

$75,344

$66,997

None of the above

Need explain not just answer for this question

Thanks

Explanation / Answer

Expected cost per stock out = potential cost of Losing a customer permanently + potential cost of customer losing out on one order + late fees

Costs of LLosing a customer permanently = probability * lifetime cost

=0.280*254096=71146.88$

Cost of losing one time =probability * profit

=.29*200*22*0.13=165.88

Late fees 500*0.43

Total = 71528

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