Stupid Homework question

[LostHiWay]

Can anyone offer any suggestions for this problem....I'm really lost on how to start it since it gives no unit cost or profit per unit.

"Bill's Coffee Shop has fresh doughnuts delivered each morning. Daily demand for doughnuts is approx. normal with a mean of 200 and a std dev. of 15. Bill pays $1.20 per dozen and has a standing order for 16 dozen. Bill and the staff eat an leftovers. What is the implied shortage cost?"

Any clues...I'm not looking for someone to do the problem...just suggestion on how to go about it. Thanks!!

 

[InverseOfNeo]

Dont you have unit cost? ($1.20/dozen)

 

[LostHiWay]

Originally posted by: InverseOfNeo
Dont you have unit cost? ($1.20/dozen)

Sorry...meant how much he sells each unit for

 

[LostHiWay]

What I'm thinking is he sells ~200 a day, and he stocks enough to meet this demand. However this particular day he got a large order for 16 dozen (192 units). Meaning he'll only 8 doughnuts left to cover his normal demand.

Thus his shortage cost would be the profit he would make on the 192 other doughnuts he would have sold but now doesn't have the stock to cover.

Make sense?

 

[dangereuxjeux]

I don't know much in the way of econ, but I see it as this... He has a standing order for 16 dozen, meaning that he receives 192 for sale each day from his supplier, that's what a standing order means... not a one-time order. As for shortage cost... got me. I'm an arch major.

 

[Spencer278]

Originally posted by: LostHiWay
What I'm thinking is he sells ~200 a day, and he stocks enough to meet this demand. However this particular day he got a large order for 16 dozen (192 units). Meaning he'll only 8 doughnuts left to cover his normal demand.

Thus his shortage cost would be the profit he would make on the 192 other doughnuts he would have sold but now doesn't have the stock to cover.

Make sense?

I think your reading it wrong Bill is the one purchasing the 16 dozen doughnuts so he will be on average have a shortage of 8 units and the implied shortage cost would be 8 * ( sale price - 1.20/12 ). But I'm not an econ major some I'm totally guessing.