Note: lt is recommended that you save your response as you complete each questio

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Note: lt is recommended that you save your response as you complete each question Question 6 (1 point) The treatment facility uses a local trucking company that handles all the orders and shipments needed for remote neighborhoods This company has monthly transportation needs that are normally distributed with a mean of 6,000 gallons and a standard deviation of 200 gallons. They must decide on the portfolio of transportation contracts to carry A long-term bulk contract with this trucking company costs $7,500 per month for the water and wastewater transported for these remote neighborhoods (larger quantities thus ofered at a discount). While transportation capacity is also available in the spot market at an average price of $11 ,000 per month for gallons delivered (smaller quantities often used for emergency replenishment needs) For how much of their transportation capacity should the trucking company sign a long-term bulk contract? 5,905 5,820 5921 6,000 Save Page 6 of t Nest Page Save All Responses Go to Subma Quiz

Explanation / Answer

Cost of shortage, Cu = 11,000 - 7,500 = 3,500

Cost of overage, Co = 7,500

Optimal target service level, F(z) = Cu/(Cu+Co) = 3500/(3500+7500) = 0.3182

For above value of F(z), corresponding z-value = NORMSINV(0.3182) = -0.4728

Optimal quantity contracted for = + z = 6000 + (-0.4728)*200 = 5905

ANSWER: 5905

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