Question

A local barbecue joint makes one massive batch of potato salad each day. If they run out of this 37) savory side before the end of the day, their last few customers are less than satisfied, but if they make too much, they sell it to the local hog farmer for feed. Every serving costs an equivalent of $0.23 to make, but can be sold for $2.50 to customers and for $0.12 to the hog farmer. The average daily demand is for 400 servings with a standard deviation of 40 servings.How many servings should be made each day?A) 462
B) 455
C) 467
D) 453

Answer 1

Answer:

option (C) 467

Explanation:

Data provided in the question:

Every serving costs = $0.23

Selling cost to customer  = $2.50

Selling cost to hog farmer = $0.12

Average daily demand, d = 400

Standard deviation, s = 40 servings

Now,

Cs = Selling price - Cost

= $2.50 - $0.23

= $2.27

Co = Cost - Discounted price

= $0.23 - $0.12

= $0.11

Service level = $\frac{Cs}{Cs+Co}$

= $\frac{\ 2.27}{\ 2.27+\ 0.11}$

= 0.9537

For the service level of 0.9537, the z value from the standard z table = 1.68

Therefore,

Servings made each day = d + zs

= 400 + 1.68 × 40

= 467.2 ≈ 467

Hence,

The correct answer is option (C) 467