Service Management: Operations, Strategy, Information Technology , 8th edition

The Supermart Store is about to place an order for Valentines Day candy. The candy can be bought for $1.40 per box, and it is sold for $2.90 per box up to Valentines Day. After Valentines Day, any remaining boxes are sold for $1.00 each. All surplus candy can be sold at this reduced price. Demand at the regular retail price is a ran- dom variable with the following discrete probability distribution:

Demand (Boxes) Probability

8 0.15

9 0.15

10 0.30

11 0.30

12 0.10

a. Determine the expected demand for boxes of candy at the regular retail price.

b. Determine the optimal number of boxes to stock using the critical fractile approach.