Single-Period Inventory System
A local sub shop across town makes sandwiches every morning to sell to U.S. Cellular store employees and customers at lunch time. Sandwiches are sold for $6.25 and cost $4.25 to make and deliver to customers. It costs the sub shop $0.25 per sandwich to pick up any leftover sandwiches after lunch time, but these leftovers can be sold for $4.00 per sandwich. The average daily demand is 52 sandwiches with a standard deviation of 21 sandwiches.
What is the target service level?
Selling cost = 6.25
Purchase cost = 4.25
Left over sold price = 4
Profit = selling cost – purchase cost
(p) = 6.25 – 4.25 = 2
Loss = 4.25 – 4 = .25
2/2+.25 = .888
Service level is .888 = 81.294
How many sub sandwiches should be made each day to meet this service level?