Answer:
The Manager should save 45,223 cubic feet of capacity for the spot market.
Explanation:
Solution
Let us consider the following information:
The bulk contract cost, cb is 0.10 per cubic foot per day
$0.13 per cubic foot per day
The mean demand μ = 60,000
Standard deviation σ = 20,000
The current capacity is 200,000 cubic feet
Now,
let us determine the optimal value by applying the formula shown below.
p = cs- cb/ cs ------(1)
Let also calculate the trucking capacity that should be saved for the spot market
Q =NORMINV (p, μ,σ )------(2)
Thus, we substitute the values in the equation (1) given below:
cs = 0.13, cb =0.10
p =0.13-0.10/0.13
=0.03/0.13
=0.23
Now, substitute the obtained value of p in equation (2) with μ = 60,000 and σ = 20,000
Q = NORMINV (0.23, 60,000, 20,000)
= NORMINV (0.23, 60,000, 20,000
= 45223.06
= 45,223
Therefore the Manager should save 45,223 cubic feet of capacity for the spot market.
