Jennifer's Donut House serves a large variety of doughnuts, one of which is a blueberry filled, chocolate-covered, super-sized doughnut supreme with sprinkles. This is an extra large doughnut that is meant to be shared by a whole family. Since the dough requires so long to rise, preparation of these doughnuts begins at 4:00 in the morning, so a decision on how many to prepare must be made long before learning how many will be needed. The cost of the ingredients and labor required to prepare each of these doughnuts is $1. Their sale price is $3 each. Any not sold that day are sold to a local discount grocery store for $0.50. Over the last several weeks, the number of these doughnuts sold for $3 each day has been tracked. These data are detailed below.

Number Sold Percentage of Days 0 10% 1 15% 2 20% 3 30% 4 15% 5 10% What is the unit cost of underordering (what is she losing if someone wants to buy a donut and she ran out)?

What is the unit cost of overordering (what is her loss if she prepared donuts that were not sold for $3)?

If she decided to prepare 3 donuts, what is the probability that she will run out before all demand is met?

Using the newsvendor formulation, how many donuts should be preparing each day to minimize her underordring and overordering costs?