4. Identify the appropriate inventory model to obtain the optimal lot size for t

Question

4.

Identify the appropriate inventory model to obtain the optimal lot size for the given problem description:

A small grocery store sells fresh produce, which it obtains from a local farmer. During the strawberry season, demand for fresh strawberries can be reasonably approximated using a normal distribution with a mean of 40 quarts per day and a standard deviation of 6 quarts per day. The grocer purchases fresh strawberries daily from the local farmer for $1.5 per quart and sells them for $3.20 per quart. At the end of each business day, any remaining strawberries are sold to a producer of fresh juice for 50 cents. 

Select one:

a. None of the listed

b. ROP

c. Single Period

d. Fixed Order Interval

e. EOQ

Explanation / Answer

The cost of excess stock is Ce = 1.5 -0.5 = 1

Cost of understocking is Cu = 3.2 - 1.5 = 1.7

Optimal service level = Cu/Cu+Ce = 1.7/2.7 = 0.62963

The optimal lot size is Q* = NORMINV(0.62963,40,6) = 41.98 ~ 42

It is a single period model. Answer is C

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