Question

Mediterranean Grocery receives monthly shipments of Naan Bread from a specialty bakery in New York. The monthly demand is normally distributed with a mean of 270 packs and a standard deviation of 30 packs. Packs are purchased wholesale for $1.65 and sold for $3.43. At the end of the month unsold packs have a salvage value of $0.8. i. Using the News Vendor model derive the optimal service level and order quantity. a) The optimal service level (Answer as either Decimal or Percent) b) order quantity (2 decimal places)

Answer 1

We find the Optimal Service level and Order quantity as shown below:

As seen from above,

Service Level = 0.6768 = 67.68%

Order Quantity = 283.76 nos.

The formula required for calculation is shown in the middle column.

The above solution in the form of formulas is shown below for better understanding and reference:

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