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According to research, each printed catalog produces an average profit of $35 from sales (or $40 in revenue). The optimal service level is 11450 for the choice to print catalogs.
How much does understocking cost?
The cost of understocking, which the supplier might interpret as a reduction in profit, is the sale price less the cost. A larger critical fractal brought on by a higher cost of understocking will result in a higher availability, which will increase the ideal cycle service level.
Service level optimization: what is it?
In order to accomplish a specified purpose, service level optimization seeks to identify the best service level for each completed good inside a user-defined product range at a site that serves customers. The following are the objectives and accompanying constraints: Objectives. Constraints. Reduce Costs.
Profit indicates that if we print fewer copies, we will lose out on a specific opportunity. This is known as the cost of understocking (Cu), which is 35, and the manufacturing cost is $5. When a thing is not sold, we pay (Co), which is $5.
Since fixed costs are incurred every year, we must take into account the critical fractile value, which is expressed as
CF = [tex]\frac{Cu }{Cu + Co}[/tex]
CF = [tex]\frac{35 }{35 + 5}[/tex]
CF = [tex]\frac{35}{40}[/tex]
CF = 0.875
Z's value at 0.875 is therefore 1.15.
The optimal order per production= 8,000 + 1.15 ×,3000 = 11450
Hence, 11,450 is the ideal order quantity.
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