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In a single-period model, if shortage cost is four times excess cost, then the optimum service level is ___%.
A) 0.B) .33.C) .50.D) .67.E) .75.

Respuesta :

Answer: 80% = 0.8

Explanation:

The following can be gotten from the question:

Cu = Shortage cost

Co = Excess cost

Since the shortage cost is four times excess cost. This will be:

Cu = 4 × Co

Cu = 4Co

Therefore, Co = 1/4Cu = 0.25Cu

The optimum service level will then be calculated as:

= Cu / (Cu + Co)

= Cu / Cu + 0.25Cu

= Cu / 1.25Cu

= 1/1.25

= 80%

= 0.8

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