Question 3 Single-period Inventory Control for Continuous Distribution Demand (4 marks)

A newsagent sells 'The Daily Business Bulletin' for $5.50 per copy. The bulletins are purchased from a printing company at the cost of $3.50 per copy. The unsold bulletins at the end of each day will be returned to the printing company for recycling and it will pay the newsagent $0.50 per copy returned. The daily demand for the bulletins is distributed normally with an average of 500 copies and a standard deviation of 90 copies.

1. If the newsagent wants to limit the bulletin's probability of stockout at 10%, how many copies of the bulletin should it carry daily? (1 mark)
2. Based on the marginal cost of underestimating and overestimating demands, what is the optimal stock of the bulletins that the newsagent should carry daily? (1 mark)
3. If the newsagent decides to carry the bulletin's daily stock of 500 copies, what should be the selling price of the bulletins so that the 500 copies become an optimal stock; provided all other costs and demand volumes remain the same? (2 marks)

Answer rating: 100% (QA)

To determine the optimal stock level for the newsagent we can use the singleperiod inventory control model and consider the costs and demand distribut... View the full answer