A delicatessen sells potato salad from trays in the cooler cabinet; the salesperson packs the salad into cardboard containers according to the customers' orders. The supervisor prepares one batch of salad in the morning and disposes of any leftover salad at closing time. Potato salad sells for $1.49 per pound, and costs $0.80 to prepare. Sales of potato salad are believed to be normally distributed with a mean of 60 pounds per day and a variance of 256. (Hint: For solving d, use Normal distribution table to get the z value corresponding to the service level.)
a. Which inventory model is appropriate here: the single-period model, the EOQ model, the EPQ model? (5marks)
b. What is the shortage cost, ? (5marks)
c. What is the excess cost, ? (5marks)
d. How large a batch should the supervisor mix up in the morning? (10marks)