Suzie’s Sweet Shop makes special boxes of Valentine’s Day chocolates. Each costs
ID: 465415 • Letter: S
Question
Suzie’s Sweet Shop makes special boxes of Valentine’s Day chocolates. Each costs $13 in material and labor and sells for $20. After Valentine’s Day Suzie reduces the price to $10 and sells any remaining boxes. Demand distribution for Valentine’s Day chocolates at Suzie’s shop is shown in the following table. How many boxes of Valentine’s Day chocolates should Suzie stock?
Demand (boxes) Relative Frequency Cumulative Frequency 84 .01 85 .05 86 .12 87 .18 88 .13 89 .14 90 .1 91 .11 92 .1 93 .04 94 .02Explanation / Answer
cost per unit for overestimating demand=Co = purchase cost per unit- sales price per unit
cost per unit for overestimating demand=Cu = profit per unit
Co=$13-$10 = $3
Cu =$20 - $13 = $7
Probability for optimal order quantity = Cu/(Cu + Co)
= 7/10=0.7
On calculating the mean and standard deviation of demand
mean = 89
Std. Deviation = 3.316
Z-value at probability 0.7 = 0.53 (use table)
Demand = 89 + 0.53*3.316
= 91 units
Suzie should stock 91 boxes.
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