What is the optimal order quantity

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Part II - Newsvendor

Demand for a new model of air conditioner is quite uncertain, and the selling season will be extremely brief. Manufacturing is done in Asia in advance of the season so that the units are all available at the start of the season. In other words, the company has one shot at ordering the optimal quantity. Based on past experience with similar lines, they estimate that demand is normally distributed with a mean of 2,480 units and standard deviation of 850 units. The cost to produce and ship each unit is $245, the planned selling price is $625, and units left over at the end of the season can be sold for $80.

1. What is the optimal order quantity?

2. If they decide on this order quantity, what would be the in-stock probability?

3. If the inventory manager used her initial decision of 2,600 for an order quantity, what would their in-stock probability be?

Reference no: EM133961445

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