Assignment:
Design a spreadsheet to calculate the optimal order-up-to point for a newsvendor problem with normally distributed demands. In order to avoid table look-ups, use the approximation formula
Z = 5.0633[F0.135 — (1 — F0.135]
for the inverse of the standard normal distribution function. (This formula is from Ramberg and Schmieser, 1972.) The optimal order-up-to point, y*, is of the form y* = σZ + μ
a. Assume that all parameters are as given in Problem 34. Graph y* as a function of p, the penalty cost, forp = [0, 15, . , 100. By what percentage does y* increase if p increases from 10 to 20? from 50 to 100?
b. Repeat part (a) with σ = 35. Comment on the effect that the variance in demand has on the sensitivity of y* to p.
Provide complete and step by step solution for the question and show calculations and use formulas.