Retail Store sells wireless external hard drives at discount prices. If the stor

Question

Retail Store sells wireless external hard drives at discount prices.  If the store does not have a drive in stock when a customer wants to buy one, it will lose the sale because the customer will purchase a drive from one of the many competitors. The problem is that the cost of renting warehousing space to keep enough drives in inventory to meet all demand is excessively high. The manager has determined that if 85% of customer demand for drives can be met, then the combined cost of lost sales and inventory will be minimized. The manager has estimated that monthly demand for drives is normally distributed with a mean of 350 drives and a variance of 225. 

 a/  Determine the number of drives the manager should order each month in order to meet 85% of customer demand.

b/  What will happen if the manager orders 380 drives?

Explanation / Answer

A. mean + Z (standard deviation) 350 + (1.03)(sqrt(225)) he should order 365.45 drivers approximatly 366 B. if he orders 380 he will have enough to meet customer demands but his storage costs will be really high we could calculate a Z tests statistic for the second part (380-350)/(sqrt(225)) and get a z score of 2. meaning there would only be a .2.28% chance of running out, but again his storage costs will be very high.

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