ed: Mar 14 at 10:50pm iz Instructions Question 9 1 pts A Las Vegas supermarket b

Question

ed: Mar 14 at 10:50pm iz Instructions Question 9 1 pts A Las Vegas supermarket bakery must decide how many wedding cakes to prepare for the upcoming weekend. Cakes cost $52 each to make and they sell for $90 each. The price of leftover wedding cakes is reduced by 50% on Mondays to clear out inventory. Demand for the weekend is normally distributed with a mean of 118 and a standard deviation of 22. What is the optimal number of wedding cakes to stock on the weekend? 4 Previous Next Not saved Submit Quiz

Explanation / Answer

Cu = Cost of underage = Selling price - Cost = $90 - $52 = $38
Co = Cost of overage = Cost - salvage value = $52 - $90*50%= $7

Critical factor = Cu / (Co+Cu) = 38/(7+38) = 0.844

Optimal in-stock probability will happen at this critical factor. So, optimal in-stock probability = 0.844

Z ~ Normal (0,1)

Value of Z at optimal in-stock probability = NORMSINV(0.844) = 1.0129

So, optimal number wedding cakes to stock = 118 + 1.0129*22 = 140.3 (or, 140 when rounded off)

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