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Fresh bread is stocked at a grocery store every morning. At the end of each day, unsold bread is reduced in price by 50% and always sells for this lower price instantly. The demand for bread is normal with a mean of 200 units and a variance of 16 units. Assume a service level of 66.67% and that the store makes bread for a cost of $1.00 per unit.
a. Find the price fresh bread sells for (per unit).
b. Calculate the per unit cost of underestimating demand. Calculate the overage cost per unit.
c. Calculate the safety stock. What is the optimal stocking level?
d. If the demand for bread is rather uniformly distributed between 100 and 300 units, what would be the optimal stocking level.
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