We can treat the occasional unavailability of cake mix pallets from the grocery
ID: 432876 • Letter: W
Question
We can treat the occasional unavailability of cake mix pallets from the grocery store warehouse as an unexpected demand for extra cake mix material. With this treatment, demand for pallets of vanilla cake mix in the 10-day Exposure Period is distributed as shown in the table below, in the two left-hand columns.
Turning to cake mix. Suppose a cupcake company set up a contract with a supplier who can quickly supply a pallet of cake mix when this cupcake company ran out. This supplier charges an extra cost of $5 per pallet (i.e. above and beyond the cost of the cake mix itself). Given the table in the case regarding the probabilities of different demand levels of pallets of cake mix, what is the new target stock level for pallets of cake mix? A. 4 B. 5 C. 3 D. 2
Pallets of Cake Mix Demanded Probability Cumulative Probability Cumulative ? SL*? Target Stock Level ID (OUTL)* Fewer than 2 .10 .10 2 .30 .40 3 .55 .95 4 .04 .99 5 .007 .997 6 .003 1.00 Sum: 1.00Explanation / Answer
as per the given information, the target stock level is 4 units, hence option A is correct
demand prob stock req cumu sl less 2 0.10 0.20 0.20 2 0.30 0.6 0.80 3 0.55 1.65 2.45 4 0.04 1.6 4.1 5 0.007 0.035 4.135 6 0.003 0.18 4.315Related Questions
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