Asked by Sonia Salomoni on Jun 10, 2024
Verified
The costs of overstocking and understocking have a direct impact on
A) the optimal cycle service level but not profitability.
B) profitability but not the optimal cycle service level.
C) both the optimal cycle service level and profitability.
D) neither the optimal cycle service level nor profitability.
Overstocking
Keeping more items in inventory than is necessary, which can lead to increased holding costs and potential waste.
Understocking
Understocking is the situation where businesses have insufficient inventory to meet demand, leading to potential sales losses and customer dissatisfaction.
Cycle Service Level
The probability of not running out of stock in any one replenishment cycle within a supply chain.
- Evaluate the ideal inventory sizes and perceive their impact on revenue and service excellence.
Verified Answer
AH
Alexander HartzlerJun 15, 2024
Final Answer :
C
Explanation :
The costs of overstocking and understocking have a direct impact on both the optimal cycle service level and profitability. It is important for the professor to maintain a certain level of stocking to meet the demand of boxes of souvenirs, but not to overstock where they may not be able to sell them all before they dry out. Additionally, the cost of stocking too many boxes can impact profitability, as the souvenirs are only worth $80 when dried out. Therefore, both the optimal cycle service level and profitability are affected by the costs of overstocking and understocking.
Learning Objectives
- Evaluate the ideal inventory sizes and perceive their impact on revenue and service excellence.