Question

6. The cost for a carton of milk is $3, and it is sold for $5. When the milk expires, it hrown out. You also know that the mean of historical monthly demand is 1,500 and the andard deviation is 200. a. What is the cost of overstocking and understocking? b. Calculate the critical ratio. C. You know that the Z-score for the critical ratio from Problem 6b is -0.253. What is the optimal quantity of milk cartons that should be ordered next month?

plz explain #6

Answer 1

The newsvendor model also called single-period model is nothing but the mathematical model which is used to determine the optimal quantity of perishable product that needs to maintained which is calculated based on fixed price and uncertain demand. Since the product is perishable and demand is uncertain the unsold items are worthless at the end of the day so newsvendor problem is solved to identify the optimal inventory level.

6- Cest=43 $5 Selling frucs valuu 0 Selunge d-1500 wis Calvoge valus 3-0 Cast Co = 43 Selling prics $5-$3 Cu cast 42 Cuitical oatio Cu b. Cu +Co 2 2t 3 2 55 O 4 Bnower Z-Valuu (0.4 C. 0.253 = d+ Zd : 1500 -0 253 x 200 1500-50 6 1449.4 1449 unit Burwer