Question

In the single-period model, if shortage cost is $20 per unit short, excess cost is $10 per unit excessive, and the optimum service level is calculated and denoted by S. If the shortage cost increases by 20% and excess cost increases by 50%, then the optimum service level equals ______.

Answer 1

Answer:

c. 90%

Explanation:

Options are "a. 52% of S. b. 67% of S. c. 90% of S. d. 60% of S. e. 48% of S"

Earlier , Cu = 20 , Co = 10

Service Level S = Cu/(Cu+Co)

Service Level S = 20 / (20 + 10)

Service Level S = 20/30

Service Level S = 0.667

After, Cu = 20*(1+20%)

Cu = 20 * 1.20

Cu = 24

Co = 10*(1+50%)

Co = 10*1.50

Co = 15

Updated Service Level = 24 / (24+15)

Updated Service Level = 24/39

Updated Service Level = 0.615

Proportion of S = 0.615/0.667

Proportion of S = 0.92

Proportion of S = 92%