Suppose that a newspaper stand is operating under the following conditions; papers cost $.4, have no salvage value, and sell for $.80. If the salvage value is increased by $.1, what is the increase in service level?
A) .5
B) 0
C) .07
D) 1
E) unable to determine given only the above information

Question

Quizplus · Accepted Answer

To calculate the increase in service level, we need to use the formula:

Increase in Service Level = (Increase in Salvage Value) / (Cost per Unit - Salvage Value + Increase in Salvage Value)

Plugging in the given values, we get:

Increase in Service Level = (0.1) / (0.4 - 0 + 0.1)

Increase in Service Level = 0.07

Therefore, the increase in service level is 0.07, which corresponds to choice C.

Suppose That a Newspaper Stand Is Operating Under the Following