Matching supply with demand

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Reference no: EM13109925

CPG Bagels starts teh day with a large production run of bagels. THroughout the morning, additional bagels are produced as needed. THe last bake is completed at 3 pm and the store closes at 8 pm. It costs approximately $0.20 in materials and labor to make a bagel. The price of a fresh bagel is $0.60. Bagels not sold by the end of the day are sold the next day as 'day old' bagels in bags of 6, for $0.99 a bag. About two-thirds of the day-old bagels are sold; the remainder are just thrown away. There are many bagel flavors, but for simplicity, concentrate just on the plain bagels. The store manager predicts that demand for plain bagels from 3 pm. until closing is normally distributed with mean of 54 and standard deviation of 21.

a. How many bagels should the store have at 3 pm to maximize the store's expected profit ( from sales between 3 pm until closing)? ( hint: assume day-old bagels are sold for $0.99/6= $0.165 each., don't worry about the fact that day-old bagels are sold in bags of six.)

b. Suppose that the store manager is concerned that stockouts might cause a loss of future business. To explore this idea, the store manager feels that is is appropriate to assign a stockout cost of $5 per bagel that is demanded but not filled. (customers frequently purchase more than one bagel at a time. This cost is per bagel demanded that is not satisfied rather than per customer that does not receive a complete order.) Given the additional stockout cost, how many bagels should the store have at 3 pm to maximize the store's profit?

c. Suppose the store manager has 101 bagels at 3 pm. How many bagels should the store manager expect to have at the end of the day?

Reference no: EM13109925

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