question archive A small grocery store buys one-gallon bottles of milk from a local dairy farmer
A small grocery store buys one-gallon bottles of milk from a local dairy farmer
Subject:Operations ManagementPrice:3.87 Bought7
A small grocery store buys one-gallon bottles of milk from a local dairy farmer. The store sells milk at $3.50 per gallon. The demand for milk is normally distributed with a mean of 30 one-gallon bottles per day and a daily standard deviation of 4 bottles. At the end of each business day, any unsold milk is purchased by local restaurants for $1.00 per bottle. Management uses a service level of 90%.
a. At what price per gallon does the store buy milk from the dairy farmer?
b. Calculate the cost of underage, Cs. Calculate the cost of overage, Co.
c. Calculate the stockout risk and the safety stock. What is the optimal stocking level?
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