The buyer for Needless Markup, a famous high-end department store, must decide on the quantity of a high-priced womans handbag to procure in Italy for the following Christmas season. The unit cost of the handbag to the store is $28.50 and the handbag will sell for $150.00. Any handbags not sold by the end of the season are purchased by a discount firm for $20.00. Demand/ P(D = d)

6 0.08

7 0.08

8 0.08

9 0.08

10 0.08

11 0.06

12 0.06

13 0.06

14 0.06

15 0.06

16 0.0375

17 0.0375

18 0.0375

19 0.0375

20 0.0375

21 0.0375

22 0.0375

23 0.0375

a) (1 point) What are the underage cost and the overage cost?

b) (1 point) What is the desired customer service level? (Please keep four decimal places, e.g. 0.1234)

c) (2 points) How many handbags do you suggest Needless Markup to procure? d) (2 points) What is the level of safety stock you suggest Needless Markup to hold? (Note: there is no need to round your answers)

e) (2 points) Suppose you want to maintain a service level of 98%, how much is the implied penalty for loss of customer good will?

f) (1 point) Assume the store accountants estimate there is a cost of $0.50 for each unit tied up in leftover inventory by the end of the holiday season, as the associated dollar amount invested elsewhere could have yielded a gross profit. In other words, each left over unit will incur an additional cost of $0.50 per unit. Everything else stays the same as before, and suppose there is no penalty for loss of customer goodwill. What is in your opinion the desired customer service level now? (Please keep four decimal places, e.g. 0.1234)