Scenario 13.3 - We Have No Bananas
Weekly demand at the Banana Stand is 200 bananas with a standard deviation of 50.The replenishment lead time is 3 weeks from the plantation in Ecuador.The Banana Stand manager orders 1000 bananas when the inventory drops to 600.Each banana costs $0.50.The holding cost the Banana Stand incurs is 40%.
-Use Scenario 13.3 to answer the question.Suppose the Banana Stand decides to cut their lot size in half.What is the new cost of understocking?
A)$0.02
B)$0.03
C)$0.04
D)$0.05

Question

Quizplus · Accepted Answer

The new cost of understocking is $0.02 because the lot size is cut in half, so the number of bananas ordered is also cut in half. This means that the Banana Stand will have to order more frequently, which will increase the cost of understocking.