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A manufacturer of lawn care equipment has introduced a new product. The anticipated demand is normally distributed with a mean of μ = 100 and a standard deviation of σ= 50. Each unit costs $75 to manufacture and the introductory price is to be $125 to achieve this level of sales. Any unsold units at the end of the season are unlikely to be very valuable and will be disposed of in a fire sale for $25 each. It costs $10 to hold a unit in inventory for the entire season.

A.) What is the cost of overstocking (Co)?
B.)What is the cost of understocking (Cu)?
C.)What is the optimal cycle service level?
D.) How many units should be manufactured for sale?

Respuesta :

Answer:Expected profit = $2657a

Explanation:

Parrain

Based on the figures given, we can calculate the:

  • Cost of overstocking to be $60
  • Cost of understocking to be $50
  • Optimal service level to be 0.455
  • Units to be produced to be 94

Cost of overstocking is:

= Manufacturing cost + Holding costs - Disposal value

= 75 + 10 - 25

= $60

Cost of understocking:

=  Selling price - Manufacturing cost

= 125 - 75

= $50

Optimal service level:

= Cost of understocking / (Cost of understocking + Cost of overstocking)

= 50 / (50 + 60)

= 0.455

Optimal units to be produced:

= Mean - Standard deviation x Z-value for optimal service level

= 100 - 50 x 0.1142

= 94

In conclusion, it is best to hold the optimal level of stock.

Find out more at https://brainly.com/question/16024591.

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