Henrique Correa's bakery prepares all its cakes between 4 A. M. and 6 A. M. so they will be fresh when customers arrive. Day-old cakes are virtually always sold, but at a 50% discount off the regular $10 price. The cost of baking a cake is $7, and demand is estimated to be normally distributed, with a mean of 25 and a standard deviation of 8. What is the optimal stocking level? Refer to the standard normal table for z-values. The optimal stocking level for the bakery is cakes (round your response to the nearest whole number).

The optimal stocking level for the bakery is cakes 27.

Explanation:

Cost c = $ 7

Selling price p = $ 10

salvage value s = $ 5

Mean = 25

Standard deviation / sigma = 8

Cu = underage cost

= p-c

= $10 - $7

= $3

Co = overage cost

= c-s

= $7 - $5

= $2

P/leq C_{u} / (C_{u}+C_{o})

P/leq3 / (3+2)

= 0.6

By using normsinv () function in excel we to find the correct critical value

The Z value for the probability 0.6 is 0.2533

The optimal stocking level is

=/mu + z/sigma

= 25 + 0.2533 * 8

= 27.02

The optimal stocking level of bakery is 27.02

Therefore, The optimal stocking level for the bakery is cakes 27.