Marie, is the second in command at Mathilda’s Bakery & Cakes and she is in charg

Question

Marie, is the second in command at Mathilda’s Bakery & Cakes and she is in charge of all operations related activities.

Mathilda’s Bakery & Cakes follows a traditional production concept. They bake breads and rolls early in the morning to fill the daily demand at a store. If they make too few breads or rolls they run the risk of not satisfying all customers that come in and loose the margin; if they make too many breads or rolls they may have left over products which they have to throw away. Discarding left over products incurs an additional disposal fee.

Mathilda and Marie are evaluating two products.

Calculate the optimal cycle service level for King Rolls and Whole Wheat Bread.

Optimal cycle service level for king rolls:

King Rolls Whole Wheat Bread Selling price (Euro per unit) 0.22 4.75 Production cost (Euro per unit) 0.022 0.95 Disposal cost (Euro per unit) 0.01 0.03

Explanation / Answer

King Rolls:

Underage cost, Cu = selling price - production cost = 0.22-0.022 = 0.198

Overage cost, Co = production cost + disposal cost = 0.022 + 0.01 = 0.032

Optimal service level for king rolls = Cu/(Cu+Co)

= 0.198/(0.198+0.032)

= 0.861

King Rolls:

Underage cost, Cu = selling price - production cost = 4.75 - 0.95 = 3.8

Overage cost, Co = production cost + disposal cost = 0.95 + 0.03 = 0.98

Optimal service level for king rolls = Cu/(Cu+Co)

= 3.8/(3.8+0.98)

= 0.795

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