Consider a local club selling Christmas trees. If trees cost $15 and sell for $60 with no salvage value, what is the ideal service level? If salvage value is increased to $5, what is the change in service level?

What will be an ideal response?


Original service level = Cs/(Cs + Co) = 45/(45 + 15 ) = .75 or 75%
New service level = Cs/(Cs + Co) = 45/(45 + 10 ) = .82, or an increase of .07 or 7%

Business

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