2. Assume demand of a ladies fashion dress is normally distributed with mean µ = 3,192...
2. Assume demand of a ladies fashion dress is normally distributed with mean µ = 3,192 and standard deviation = 1,181. Selling Price = $180, Purchase price = $110, Salvage value = $90.
(a) Compute the target cycle service level.
(b) Find the z value for the target cycle service level of part (a).
(c) Find the optimal order quantity.
Homework Answers
Answer: - According to given data
a) cycle service level formula = Cu/Cu+Co
Cu = underage cost = selling price - cost price = $180 - $110 = $70
Co = Overage cost = Cost price - salvage cost = $110 - $90 = $20
Cycle service level = $70 / $70+$20 = $70 / $90 = 0.7778
b) Z value for the obtained service cycle is obtained by standard probability table
Z value = 0.76
c) Formula to calculate the order quantity = mue + z * standard deviation
Optimal order quantity = 3192 + 0.76*1181 = 4089.56 ~ 4090
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