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Inventory models

Johansen 's Ice Cream Shoppe purchases fresh-baked waf .e cones from the Myra Cone Company. The cones cost Johansen $0.28 each and are delivered once each day. Johansen 's charges customers who want their ice cream in a waffle cone an extra $0.40. If Johansen 's runs out of waf .e cones,it estimates that it suffers a customer goodwill loss of $0.75 for each additional customer request for a waflee cone. Unsold waffle cones are ground up and used as toppings on the frozen yogurt sold by the company. Johansen 's therefore estimates the salvage value of unsold cones at $.06. Johansen 's also estimates that daily demand for the waffle cones follows approximately a normal distribution with a mean of 70 units and a standard deviation of 16 units. Determine how many waf .e cones Johansen 's should purchase each day from Myra Cone.

Solution Preview

This is the case of Newsvendor or Newsboy model (single period model)

Mean demand per day (u) = 70
Standard deviation of demand (s) = 16
Unit selling charge (p) = $0.4
Unit purchase cost (c) = $0.28
Unit salvage value (in the form of toppings) ...

Solution Summary

solution contains calculation for number of waffle cones Johansen 's should purchase each day from Myra Cone. This is the case of Newsvendor or Newsboy model (single period model)

$2.19