In a single-period model, if shortage cost is four times excess cost, then the optimum service level is _____ percent.
A)100
B)80
C)60
D)40
E)20

Question

Quizplus · Accepted Answer

The optimum service level in a single-period model, when the shortage cost is four times the excess cost, is calculated using the formula: Service Level = Cost of Shortage / (Cost of Shortage + Cost of Excess). Here, if the shortage cost is four times the excess cost, then the formula becomes 4 / (4+1) = 4/5 = 0.8 or 80%.

In a Single-Period Model, If Shortage Cost Is Four Times