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# Newsboy problem for Furr's Stationary

It is October 15, and Furr's Stationary must decide how many calendars it should order from the World Wildlife Federation. The calendars cost the company \$4.25, and Furr 's sells them for \$9.50. The calendars will arrive on November 1,and demand during the period between November 1 and Christmas is estimated to follow a normal distribution with a mean of 250 units and a standard deviation of 40 units. Any calendars that remain after Christmas will be marked down to \$2.00 and sold at Furr 's annual after Christmas sale. If Furr's runs out of calendars before Christmas, it estimates it suffers a goodwill cost of \$1.50 for each calendar demanded when it is out of stock. If Furr's can only place one order for the calendars and there is a \$20 cost of placing an order, determine:

a.How many calendars it should order.

b.The expected pro .t it will earn on the calendars.

#### Solution Preview

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

Mean demand per day (u) = 250
Standard deviation of demand (s) = 40
Unit selling charge (p) = \$9.50
Unit purchase cost (c) = \$4.25
Unit salvage value (in the form of toppings) (Co) = \$2.00
Unit stockout cost in the form of customer goodwill (Cs) = \$1.50

. First we need to calculate the critical ratio/factor. This ratio indicates two regions. One region is on the RHS of this factor in which demand is greater than the order ...

#### Solution Summary

Provides step by step solution for arriving at inventory policy based on Newsboy single period problem

\$2.19