University of Florida football programs are printed 1 week prior to each home ga

Question

University of Florida football programs are printed 1 week prior to each home game. Attendance averages 60,000 screaming programs are sent to a recycling center that pays only 10 cents per program. The standard deviation is 10,000 programs, and the cost to print each program is $2. Refer to the standard normal table for z-values. a) What is the cost of underestimating demand for each program? Cs 3 (round your response to two decimal places). b) What is the overage cost per program? Co(round your response to two decimal places).

Explanation / Answer

a) Shortage of 1 unit results in loss of opportunity to earn profit on 1 unit, because of selling 1 unit less than the demand. Therefore, Cost to underestimating the demand is equal to the profit per unit.

Cs = selling price - cost = 5 - 2 = $ 3.00

b) Overage cost is the cost that is incurred, by having 1 unit more than the demand. Therefore, overage cost is equal to cost minus salvage value.

Co = 2 - 0.1 = $ 1.90

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