Question

In an attempt to raise money for charity, you have decided to have a fish fry. You will only be able to sell the fish the evening of the fish fry. Any fish that are extra at the end of the night will be sold to a restaurant for $1. The fish cost $4 each and can be sold for $10. Over the last 4 years, this event has sold an average of 800 fish with a standard deviation of 40 fish. To maximize the money made for charity, we should buy the following number of fish:

a)    .667

            b)    817

            c)   827

            d)    840

Answer 1

Cost price (Cp) = $4

Selling price(SP) = $10

Salvage value (V) = $1

Average daily demand (d) = 800 fish

Standard deviation of daily demand (d) = 40 fish

Overage cost (Co) = Cp-V = $4-$1= $3

Underage cost (Cu) = SP-Cp = $10-$4= $6

Service level = Cu/(Co+Cu) = 6/(3+6)= 6/9 = 0.67 or 67%

At 67% service level value of Z = 0.43

Number of fishes to be purchased = d + Z x d = 800 + 0.43 x 40 = 800+17.2 = 817.2 or rounded to 817

So the answer is option b