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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