Question

A Las Vegas supermarket bakery must decide how many wedding cakes to prepare for the upcoming weekend. Cakes cost $33 each to make, and they sell for $60 each. Unsold cakes are reduced to half-price on Monday, and typically one-third of those are sold. Any that remain are denoted to a nearby senior center. How many cakes should be prepared to maximize expected profit

Answer 1

The bakery should stock 2 wedding cakes.

Solution:

Cost = $33/cake

Rev = $60

Shelter value= $30

Cost of stock out = Selling Price - Unit cost

                                   = $60 - $33 = $27

Cost of excess inventory = Unit cost - Salvage value

                                                = $33 - $30 = $23

The bakery will stock 2 marriage bakes as the service standard of 0.54 dropped to a combined likelihood of 0.50 and 0.80.