Question

Bakery A sells bread for $2 per loaf that costs $0.40 per loaf to make. Bakery A gives a 90% discount for its bread at the end of the day. Based on the critical ratio determined, the company would expect the stockout rate to be % (round to the two decimal places )

Answer 1

The stockout rate for Bakery A can be determined using the critical ratio. In this case, the critical ratio is 0.69, indicating a stockout rate of 69%.

Step-by-step explanation:

In this scenario, Bakery A sells bread at $2 per loaf, with a production cost of $0.40 per loaf. At the end of the day, the bakery gives a 90% discount on the bread. To determine the stockout rate, we need to calculate the critical ratio which is the ratio of lost sales cost (LC) to total cost (TC). The formula for calculating the critical ratio is CR = LC / (LC + VC), where VC is the variable cost per unit. In this case, the variable cost per unit is $0.40. Let's calculate the critical ratio and the stockout rate:

CR = (0.40*0.9) / (0.40*0.9 + 1.60*0.1)

CR = 0.36 / (0.36 + 0.16)

CR = 0.36 / 0.52

CR = 0.69

The critical ratio is 0.69, which means the stockout rate is 69%. This indicates that the bakery can expect a stockout rate of 69% based on the determined critical ratio.