Scenario 13.1 - Nefarious
The tenured professor routinely led student groups on factory tours in exotic locales,and one popular destination was an island south of Miami.The students enjoyed this happy little island and the professor liked it because he could supplement his income by bringing back a few boxes souvenirs he could sell to his friends.The souvenirs cost the professor $125 a box and he sells them for $290 a box.Souvenirs that dry out due to age can be sold for $80.Experience has shown that the demand for boxes of these souvenirs has a mean of 80 with a standard deviation of 20.
-The costs of overstocking and understocking have a direct impact on
A)the optimal cycle service level but not profitability.
B)profitability but not the optimal cycle service level.
C)both the optimal cycle service level and profitability.
D)neither the optimal cycle service level nor profitability.

Question

Quizplus · Accepted Answer

The costs of overstocking and understocking have a direct impact on both the optimal cycle service level and profitability. It is important for the professor to maintain a certain level of stocking to meet the demand of boxes of souvenirs, but not to overstock where they may not be able to sell them all before they dry out. Additionally, the cost of stocking too many boxes can impact profitability, as the souvenirs are only worth $80 when dried out. Therefore, both the optimal cycle service level and profitability are affected by the costs of overstocking and understocking.