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Homework_7_InventoryManagement_Solution

# Homework_7_InventoryManagement_Solution - 311 Operations...

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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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