# Question

Reconsider Prob. 18.7-5. The bakery owner, Ken Swanson, now wants you to conduct a financial analysis of various inventory policies. You are to begin with the policy obtained in the first four parts of Prob. 18.7-5 (ignoring any cost for the loss of customer goodwill). As given with the answers in the back of the book, this policy is to bake 500 loaves of bread each morning, which gives a probability of incurring a shortage of 1/3.

(a) For any day that a shortage does occur, calculate the revenue from selling fresh bread.

(b) For those days where shortages do not occur, use the probability distribution of demand to determine the expected number of loaves of fresh bread sold. Use this number to calculate the expected daily revenue from selling fresh bread on those days.

(c) Combine your results from parts (a) and (b) to calculate the expected daily revenue from selling fresh bread when considering all days.

(d) Calculate the expected daily revenue from selling day-old bread.

(e) Use the results in parts (c) and (d) to calculate the expected total daily revenue and then the expected daily profit (excluding overhead).

(f) Now consider the inventory policy of baking 600 loaves each morning, so that shortages never occur. Calculate the expected daily profit (excluding overhead) from this policy.

(g) Consider the inventory policy found in part (e) of Prob. 18.7-5. As implied by the answers in the back of the book, this policy is to bake 550 loaves each morning, which gives a probability of incurring a shortage of 1/6. Since this policy is midway between the policy considered here in parts (a) to (e) and the one considered in part (f), its expected daily profit (excluding overhead and the cost of the loss of customer goodwill) also is midway between the expected daily profit for those two policies. Use this fact to determine its expected daily profit.

(h) Now consider the cost of the loss of customer goodwill for the inventory policy analyzed in part (g). Calculate the expected daily cost of the loss of customer goodwill and then the expected daily profit when considering this cost.

(i) Repeat part (h) for the inventory policy considered in parts (a) to (e).

(a) For any day that a shortage does occur, calculate the revenue from selling fresh bread.

(b) For those days where shortages do not occur, use the probability distribution of demand to determine the expected number of loaves of fresh bread sold. Use this number to calculate the expected daily revenue from selling fresh bread on those days.

(c) Combine your results from parts (a) and (b) to calculate the expected daily revenue from selling fresh bread when considering all days.

(d) Calculate the expected daily revenue from selling day-old bread.

(e) Use the results in parts (c) and (d) to calculate the expected total daily revenue and then the expected daily profit (excluding overhead).

(f) Now consider the inventory policy of baking 600 loaves each morning, so that shortages never occur. Calculate the expected daily profit (excluding overhead) from this policy.

(g) Consider the inventory policy found in part (e) of Prob. 18.7-5. As implied by the answers in the back of the book, this policy is to bake 550 loaves each morning, which gives a probability of incurring a shortage of 1/6. Since this policy is midway between the policy considered here in parts (a) to (e) and the one considered in part (f), its expected daily profit (excluding overhead and the cost of the loss of customer goodwill) also is midway between the expected daily profit for those two policies. Use this fact to determine its expected daily profit.

(h) Now consider the cost of the loss of customer goodwill for the inventory policy analyzed in part (g). Calculate the expected daily cost of the loss of customer goodwill and then the expected daily profit when considering this cost.

(i) Repeat part (h) for the inventory policy considered in parts (a) to (e).

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