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Newsboy problem for Raul's Bakery

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Raul 's Bakery bakes sourdough bread each day. Demand on past days has followed approximately a normal distribution,with an average of 60 loaves and a standard deviation of 12 loaves. The bread sells for $2.50 per loaf and costs $1.00 to produce. Loaves of bread unsold at the end of the day are donated to a food bank and result in the bakery getting an income tax credit of $.35. If the bakery runs out of sourdough bread,it believes it will suffer a goodwill cost of $5.00 for each loaf that is demanded and is not available. How many loaves of the sourdough bread should Raul 's Bakery make each day?

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Solution Summary

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

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

Mean demand per day (u) = 60
Standard deviation of demand (s) = 12
Unit selling price (p) = $2.50
Unit production cost (c) = $1.00
Unit salvage value (in the form ...

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