Note: It is recommended that you save your response as you complete each questio

Question

Note: It is recommended that you save your response as you complete each question. Page 9 ot 10 Question 9 (10 points) The demand for next year's wildlife calendar at a bookstore is assumed to be normally distributed with a mean of 510 and a standard deviation of 80. The calendar costs the bookstore $4.20 each and will be sold for $15 each. Any calendars remaining for sale after Christmas will be discounted and sold for $0.70 each. The bookstore believes any cal remaining to be sold after Christmas can be cleared at the $ price. How many wildlife calendars should the bookstore stock if it wants to maximize its expected proft from wildife calendars? A) 565 B) 735 C) 798 D) 645 Save 2 of

Explanation / Answer

The cost of outage Co= cost - salvage value = 4.2 -0.7 =3.5

Cost of underage Cu= Price -cost = 15-4.2 = 10.8

Critical ratio = Cu / Cu+Co = 10.8 / 10.8+3.5 = 0.755

which corresponds to z = 0.69

Optimum order quantity = Q = mu+ z x S.D.

= 510 + 0.69x80 = 562.5

A is correct.

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