The annual demand for a certain item is N(300,22). Suppose the annual stock level is 300. If demand is less than 300, the annual holding cost of the leftover items is $65 per item. If the demand is greater than 300, then the loss of good will is $100 per item.
Determine the expected annual cost of shortages or surpluses of this product.
Compute the standard deviation of costs.
Comment on the stock level of 300. Can you determine the appropriate stock level that minimizes expected cost?