Sally’s Silk Screening produces specialty T-shirts that are
primarily sold at special events. She is trying to decide how many
to produce for an upcoming event. During the event, Sally can sell
T-shirts for $20 apiece. However, when the event ends, any unsold
T-shirts are sold for $4 apiece. It costs Sally $8 to make a
specialty T-shirt. Sally’s estimate of demand is the
following:
DEMAND | PROBABILITY |
300 | 0.05 |
400 | 0.10 |
500 | 0.40 |
600 | 0.30 |
700 | 0.10 |
800 | 0.05 |
a. What is the service rate (or optimal fractile)?
(Round your answer to 2 decimal places.)
Service rate:
Service rate = cost of shortage / cost of shortage + cost of excess
cost of shortage = sales price - cost = 20-8 =12
cost of excess = cost - salvage value =8-4 =4
service rate = 12 / 12+4 = 12/16 = 0.75
Sally’s Silk Screening produces specialty T-shirts that are primarily sold at special events. She is trying...