Question

For seasonal​ products, the service level should be set to equal A. overage cost​ / (overage cost​ + shortage​ cost). B. shortage cost​ / (overage cost minus shortage​ cost). C. shortage cost​ / (overage cost​ + shortage​ cost). D. overage cost​ / (overage cost minus shortage​ cost).

Answer 1

Answer:

C. shortage cost​ / (overage cost​ + shortage​ cost).

Explanation:

For computing the service level for the seasonal products, we divide the shortage cost to the overage cost plus shortage cost.  

The overage cost is that cost which is incurred for ordering excess inventory which is not required for the present level of production level. It is a loss for the company.  

And, the shortage cost is that cost in which the company has no stock in their warehouse through which it impacts the business image and the goodwill. The company's customers will go to another company which results in the loss of the company customers.

For service level, we added the overage cost and shortage cost in the denominator side

So, the correct option is c.