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Single Period Inventory Model with Probabilistic Demand

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The Fitness Shop is considering ordering a special model exercise machine. Each unit will cost the shop $220 and it will sell for $400. Any units not sold at the regular price will be sold at the year-end model clearance for $150. Assume that demand follows a normal probability distribution with µ = 10 and variance = 3. What is the recommended order quantity?

I end up with Cu=360 and Co=78... and I know that isn't correct. My P(demand <= Q*) = .66

And I end up with Q*=43. It's supposed to end up being 26. Can you show me how this problem is supposed to be worked out?

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Solution Summary

Single period inventory model with probabilistic demand is investigated. Recommended order quantity is calculated. The solution is detailed and well presented.

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