Answer :
a) Cost of underestimating demand = $3
b) Average cost per program =$1.90
c) number of program ordered 51,503
d) Stock out risk = 0.3878
Explaination :
As per the data given in the question,
Total purchased program = (2 ÷ 3) × 75,000 = 50,000
Unsold program = 10% × 50,000 = 5,000
a) Cost of underestimating demand = cost of each program - cost to print each program
= $5 - $2
= $3
b)Average cost per program = cost to print each program - amount got for sending it for recycling
= $2 - $0.10
= $1.90
c) Service level = Cost of underestimating demand ÷ (Cost of underestimating demand + Average cost per program)
= $3 ÷ ($3 + $1.90)
= 0.6122
So, Z is 0.3005
Therefore number of program ordered = 50,000 + 0.3005 × 5,000
= 51,502.5
= 51,503
d) Stock out risk = 1 - Service level
= 1 - 0.6122
= 0.3878
We simply applied the above formulas
