A manufacturer of lawn care equipment has introduced a new product. The anticipated demand is normally distributed with a mean of μ = 100 and a standard deviation of σ = 50. Each unit costs $75 to manufacture and the introductory price is to be $125 to achieve this level of sales. Any unsold units at the end of the season are unlikely to be very valuable and will be disposed of in a fire sale for $25 each. It costs $10 to hold a unit in inventory for the entire season.
A.) What is the cost of overstocking (Co) ?
B.) What is the cost of understocking (Cu) ?
C.) What is the optimal cycle service level?
D.) How many units should be manufactured for sale?
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