Henrique Correa\'s bakery prepares all its cakes between 4 A.M.and 6 A.M.so they

Question

Henrique Correa's bakery prepares all its cakes between 4 A.M.and 6 A.M.so they will be fresh when customers arrive. Day-old cakes are virtually always sold, but at a 50% discount off the regular $8 price. The cost of baking a cake is $5, and demand is estimated to be normally distributed, with a mean of 30 and a standard deviation of 6. What is the optimal stocking level? Refer to the standard normal table LOADING... for z-values.

The optimal stocking level for the bakery is                         cakes (round your response to the nearest whole number).

Explanation / Answer

Cs= 8.00 - 5.00 = 3.00

Co= 5.00 - 4.00 = 1.00

Service level = 3/(3 + 1) = 3/4 = 0.75

This indicates that 75 percent of the area under the normal curve must be to the left of the stocking level. Appendix I (distribution table) shows that a value of z is 0.77337, will satisfy this; = 30, = 6.

Thus,So = 30 + 0.77337 × 6 = approx 35

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