Module 7

A store receives a low-margin consumable with a shelf life of only a few days after which the item discarded. Which of the following is TRUE?

everything else held equal, the merchant would prefer to understock rather than overstock

If a retailer purchases a certain item under the newsvendor model and the cost of overstocking and the cost of understocking are $180 and $290, respectively, what would be the optimal in-stock probability?

62%

Which of the following represents the cost of understocking?

lost net profit (per unit)

Everything else held equal, a decrease in the cost of overstocking is likely to ____.

increase the unit profit margin

A retailer estimated demand for the next year’s blue sweaters at 1,000 and a standard deviation of 100. The optimal in-stock probability is about 83% and the order quantity is 1,100. The retailer learns of an attractive offer from a re-seller should any overstocking occur. Consequently, the order quantity is expected to ______.

increase

Which of the following is correct regarding the optimal order quantity (Q*)?

Q* = Average expected demand + (Number of standard deviations * Standard deviation of demand)

In which of the following product applications would it be most appropriate to utilize the newsvender mode?

women’s fashion apparel.

If demand is _____, the newsvendor ________.

known; would order expected demand

Under the newsvendor model, when the manufacturer increases its prices ______. 

the retailer’s optimal order quantity is more likely to decrease

If a retailer purchases a certain item under the newsvendor model and the optimal in-stock probability is 93% - which is 1.48 standard deviations above the mean - what would be the optimal order quantity given that the average expected demand is 347 with a standard deviation of 41.8? (round up)

409