311 Operations Management
Fall 2007
Homework 7: EOQ and Newsvendor
Due 11/20/2007
1.
(20 pts; 10 pts for (a) and (b) each) Problem 9 page 620 in the textbook.
a)
D = 1000 units/year, S = $10, H = $2 /unit/year
Q
2
= 2*S*D/H, Q = 100
b)
At Q = 100, the annual cost (excluding purchase cost) is
D/Q*S+Q/2*H = 100 + 100 = $200
At Q = 500, the annual cost (excluding purchase cost) is
D/Q*(S – 100) +Q/2*H = –180 + 500 = $320
Q = 100 is the right decision.
2.
(20 pts.) Jean and Jill’s Bakery bake fresh pies every morning. The daily demand for
Jean and Jill's apple pies is a random variable with (discrete) distribution, based on
past experience, given by:
Demand
5
10
15
20
25
30
Probability
10% 20% 25% 25% 15% 5%
Each apple pie costs Jean and Jill $6.75 to make and is sold for $17.99. Unsold apple pies
at the end of the day are purchased by a nearby soup kitchen for 99 cents each. Assume
no goodwill cost.
a)
(10 pts.) If Jean and Jill decided to bake 15 apple pies each day, what would
be her expected profit?
If demand is 5 (probability 0.1), we will sell 5 apple pies and have 10 leftover.
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 Fall '07
 Vaitsos
 Management, Normal Distribution, Standard Deviation, Variance, Jill

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