Answer:
The stocking level that is appropriate if one-half of the day-old cakes are sold and the rest thrown out is 5 cakes because, to maintain a service level greater or higher than 0.4 the shop should keep up the stocking level of 5 cakes
Explanation:
Solution
Given that:
The manager estimates it costs for (production cost) =$9
The selling cost for the cakes is = $12
The price for a day old cake sells for = $9
Now,
We must find the stocking level by applying the following steps:
The first step is to find the service level by using the formula below:
SL = Cs/Cs +Ce this is the equation (1)
Where,
Cs = The shortage of cost per unit =Rev - Cost
= $12-$9
=$3 per cake
Ce = The excess cost which is,
Ce = Cost - Salvage
= $9- (1/2) * $9
=$4.50 for each cake
For the second step we replace the values equation 1 in other to find the service level as shown below:
SL = 3/3 +4.50
=0.4
For the third step we have to apply the cumulative frequencies fro a mean 6.0 derived from the Poisson Table of probabilities. the values are shown below:
We now have the following:
Demand Cumulative Frequencies
0 0.003
1 0.017
2 0.062
3 0.0151
4 0.285
5 0.446
6 0.606
Thus,
After the comparison from the Table for us to maintain a service level greater or higher than 0.4 the shop should keep up the stocking level of 5 cakes
