Answer :
the number of rooms the event manager should book now is the average expected demand plus the safety stock: 40 + 14 = 54 rooms. determine the number of rooms the event manager should book now, we need to consider the expected demand, cancellation costs, and the cost of booking at the last moment.
Given that the average expected demand is 40 rooms with a standard deviation of 8, we can calculate the safety stock using the desired service level and the lead time demand variability.
Considering the cancellation cost of Rs. 750 per room, we can calculate the effective holding cost as follows: Effective Holding Cost = Holding Cost - Cancellation Cost = Rs. 1500 - Rs. 750 = Rs. 750.
To calculate the safety stock, we can use the formula: Safety Stock = Z * σ, where Z is the Z-score corresponding to the desired service level and σ is the standard deviation.
Assuming a service level of 95% (corresponding to a Z-score of 1.645), the safety stock is 1.645 * 8 = 13.16 (rounding up to 14 rooms).
Therefore, the number of rooms the event manager should book now is the average expected demand plus the safety stock: 40 + 14 = 54 rooms.
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