Problem 13-37 A small grocery store sells fresh produce, which it obtains from a
ID: 446508 • Letter: P
Question
Problem 13-37
A small grocery store sells fresh produce, which it obtains from a local farmer. During the strawberry season, demand for fresh strawberries can be reasonably approximated using a normal distribution with a mean of 36 quarts per day and a standard deviation of 7 quarts per day. Excess costs run .40 cents per quart. The grocer orders 42 quarts per day.
What is the implied cost of shortage per quart? (Round your z value to 2 decimal places, your service level probability to 4 decimal places and your final answer to 2 decimal places. Omit the "$" sign in your response.)
A small grocery store sells fresh produce, which it obtains from a local farmer. During the strawberry season, demand for fresh strawberries can be reasonably approximated using a normal distribution with a mean of 36 quarts per day and a standard deviation of 7 quarts per day. Excess costs run .40 cents per quart. The grocer orders 42 quarts per day.
Use Table.Explanation / Answer
Daily Demand 36 Standard Deviation 7 Daily Order Size 42 Reorder Point = Daily Demand + Z Value * Standard Deviation or, 42 = 36 + Z value * 7 or Z Value = 6/7 = 0.86 from Z tables, Service Level Probability = 0.8051 Stock out Cost = 0.40 cent per quart Stock out cost = 19.49% * 36 * 0.4 = $2.81