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O'Neill sources fuse wetsuits from an Asians supplier for $175 each and sells them to customers...

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General Management

O'Neill sources fuse wetsuits from an Asians supplier for $175 eachand sells them to customers for $480 each. Leftover wetsuits at theend of the season have no salvage value. The demand forecast isnormally distributed with average 800 wetsuits and standarddeviation 100 wetsuits. If O'Neill uses the newsvendor modelcorrectly and places an order from its Asian supplier for thisseason, what is the expected mismatch cost?

-About $26,000?
-About $18,000?
-About $12,000?
-About $24,000?

Answer & Explanation Solved by verified expert
4.4 Ratings (923 Votes)
Purchase costc 175 Selling cost 480 Salvage cost s 0 Marginal cost of excess Ce cs 1750 175 Marginal cost of shortage Cs rc 380 Optimal service rate CsCsCe 380380175 06844 For    See Answer
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