? 2 ? The unit cost of an item meeting newsvendor assumptions is $140. On a unit sold, you make a "profit" of $60 and on a unit leftover, you lose $20 because the salvage value is at $120. The distribution of demand is shown to be as follows: Demand 20 40 60 80 100 120 Prob. 0.1 0.15 0.22 0.3 0.15 0.08 Cum. 0.1 0.25 0.47 0.77 0.92 1 Prob. a) What is the optimal service level? Cu 60 Co=20 Fa(Q)=Cu/Co + Cu = 60/(20+60)=75 75% b) What is the optimal order quantity? 80 0.3 0.77 82 crit. 75 c) What is the expected profit if you order optimal quantity (do not round off expected sales and expected leftover values)? 80 6.3 0.77 4800 expected profit 3488 d) What will be the selling price (assuming cost and salvage value does not change) if the optimal service level is 90%? optimal service = 90% demand = 100 optimum demand