Question

A GMC dealer believes that demand for 2005 Envoys will be normally distributed with a mean of 200 and standard deviation of 30. His cost of receiving an Envoy is $25,000, and he sells an Envoy for $40,000. Half of all the Envoys not sold at full price can be sold for $30,000. He is considering ordering 200, 220, 240, 260, 280, or 300 Envoys. How many should he order?

Answer 1

Answer:

The correct answer to the following question will be "280 units".

Step-by-step explanation:

The given values are:

Mean = 200

Standard deviation = 30

Let's ask that the supplier needs to reach 99.9% of the standard of operation. To reach this quality of operation, she has to preserve an inventory of

Now,

⇒  $Mean + 3\times sigma$

On putting the values, we get

⇒  $200+3\times 30$

⇒  $200+90$

⇒  $290 \ units$

290 units would then accomplish a level of service of 99.9%.

Half unpurchased units can indeed be purchased at $30000 i.e. no failure. If he requests 300, there will be losses on 5 products that are unsold.

Hence, ordering 280 units seems to be preferable