Question

A local club is selling Christmas trees and deciding how many to stock for the month of December. If demand is normally distributed with a mean of 100 and standard deviation of​ 20, trees have no salvage value at the end of the​ month, trees cost​ $20, and trees sell for​ $50 what is the service​ level?

Answer 1

0.6

Step-by-step explanation:

Data provided :

Mean = 100

Standard deviation = 20

Salvage value of the tree = $ 0

Actual cost of the tree = $ 20

Selling cost of the trees = $ 50

Now, the cost of shortage = Selling cost - actual cost = $ 50 - $ 20 = $ 30

and the outrage cost = actual cost = $ 20

Now,

the service level is calculated as:

service level =
`\frac{\textup{cost of shortage}}{\textup{cost of outrage + cost of shortage}}`

on substituting the value, we get

service level =
`(\$\ 30)/(\$\ 20\ +\ \$\ 30)`

or

Service level = 0.6