Single Period Model
A company is considering ordering sunglasses for the up-coming season and can place only a single order. History indicates a demand averaging 400 with a standard deviation of 40, normally distributed. The glasses will sell for $120 each. They cost $80 each and the excess not sold will be sold out of the country for $20 each.
What is the cost of underage?
What is the cost of overage?
What is the desired service level?
What Z value is associated with the above service level?
What amount should be ordered?