Question

Henrique​ Correa's bakery prepares all its cakes between 4 A.M.and 6 A.M.so they will be fresh when customers arrive.​ Day-old cakes are virtually always​ sold, but at a​ 50% discount off the regular ​$ price. The cost of baking a cake is ​$​, and demand is estimated to be normally​ distributed, with a mean of and a standard deviation of . What is the optimal stocking​ level? Refer to the standard normal tableLOADING... for​ z-values. The optimal stocking level for the bakery is nothing cakes ​(round your response to the nearest whole​ number).

Answer 1

27

Step-by-step explanation:

The computation of the optimal stocking level for the bakery is shown below:

Given that

Cost = c = $7

Selling price = p = $ 10

salvage value = s = $ 5

Mean = 25

Standard deviation =
`\sigma`= 8

Now based on the above information

underage cost = Cu = p-c = $10 - $7 = $3

And,

overage cost = Co = c-s = $7 - $5 = $2

So,

`(P\leq C_(u))/((C_(u)+C_(o)))\\\\(P\leq3)/((3+2))`

= 0.6

Now use normsinv() function in excel

So,

The Z value for the probability 0.6 is 0.2533

Now finally

The optimal stocking level is

`=\mu +z\sigma`

= 25 + 0.2533 × 8

= 27.02

= 27