Question

Burger Prince buys top-grade ground beef for $1.00 per pound. A large sign over the entrance guarantees that the meat is fresh daily. Any leftover meat is sold to the local high school cafeteria for 80 cents per pound. Four hamburgers can be prepared from each pound of meat. Burgers sell for 60 cents each. Labor, overhead, meat, buns, and condiments cost 50 cents per burger. Demand is normally distributed with a mean of 319 pounds per day and a standard deviation of 32 pounds per day. What daily order quantity is optimal? (Hint: Shortage cost must be in dollars per pound.) (Round your answer to 1 decimal place.)

Use Table.

Answer 1

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Answer:

• Mean = 319 pound per day
• S.D. = 32 pound
• Price for 1 pound of beef used = 0.6 * 4 = $2.4
• Cost for 1 pound of beef used = 0.5*4 = $2
• C_u = cost of underusage = price - cost = 2.4 -2 = $0.4
• Salvage value for 1 pound of Beef not used = $0.8
• Cost for 1 pound of beef unused = $1
• C_o = Cost of over usage = Cost - salvage value = 1-0.8 = $0.2
• Critical ratio = Cu / (Cu + Co)= 0.4 /0.6 = 0.66667
• Putting the values of critical ratio , mean and S.D. in Norm Inv function of excel, Critical value = 332.7833
• They should order 332.8 pounds daily (Answer)