Answer:
The optimal stocking level for the bakery is cakes 27.
Explanation:
Cost c = $ 7
Selling price p = $ 10
salvage value s = $ 5
Mean = 25
Standard deviation \sigma = 8
Cu = underage cost
  = p-c
  = $10 - $7
  = $3
Co = overage cost
   = c-s
   = $7 - $5
   = $2
P\leq C_{u}/(C_{u}+C_{o})
P\leq3/(3+2)
= 0.6
By using normsinv() function in excel we to find the correct critical value
The Z value for the probability 0.6 is 0.2533
The optimal stocking level is
=\mu +z\sigma
= 25 + 0.2533 *8
= 27.02
The optimal stocking level of bakery is 27.02
Therefore, The optimal stocking level for the bakery is cakes 27.