Problem: A supermarket sells potato salad from trays in the cooler cabinet. The salesperson packs the salad into cardboard containers according to customer's orders. The supervisor prepares one batch of salad in the morning. Potato salad sells for $1:96 per pound and costs $0:90 to prepare. Sales of potato salad are believed to be normally distributed with a mean of 80 pounds per day and a standard deviaion of 16 pounds. If there is any leftover salad at the closing time, the supermarket can sell it all at 25% of the original price.
1. What inventory model should be used to determine the amount of potato salad (in pounds) to prepare in order to maximize the total expected proÖt? Why?
2. What is the optimal service level?
3. How large a batch of potato salad should the supervisor prepare in the morning?