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Solutions to Quiz_4_Fall_08

# Solutions to Quiz_4_Fall_08 - C TM = \$9,000 \$15,000 \$1,000...

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SECTION: 8 am 10 am NAME:___________________________ (Circle One ) BUAD 311T Quiz #4 Fall 2008 The Uran Company makes a product that is radioactive and has a shelf-life of one year. It produces the product every January. The demand distribution for this product (in number of units) is given below. The production cost of product is very high, and is \$9000 per unit. The selling price to different spy agencies is even higher at \$49000 per unit. The holding cost is \$1000 per year per unit. At the end one year, due to the dangerous nature of the material every unsold unit must be buried at a special location at the high cost of \$15000 per unit. Demand Level Prob{Demand = q} Prob{Demand q} 100 0.3 0.30 200 0.3 0.60 300 0.1 0.70 400 0.2 0.90 500 0.05 0.95 600 0.05 1.0 (a) (8 pts) What are Uran’s too-much and not-enough costs ?
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Unformatted text preview: C TM = \$9,000 + \$15,000 +\$1,000 = \$25,000 C NE =\$49,000 - \$ 9,000 = \$40,000 (b) (6 pts) What is the optimal number of units for the Uran Company to produce (in order to minimize total expected costs)? Target Fill-Rate = [40,000/(40,000 + 25,000)] = 0.615=> q* = 300 (c) (5 pts) What is the buffer (or safety stock ) for the product given your answer to part (b)? E(D)=0.30(100)+0.3(200)+0.1(300)+0.2(400)+0.05(500)+0.05(600) = 255 units Buffer (or safety stock) = q* - E(D) = 300 – 255 = 45 units (d) (6 pts) Suppose the Uran Company produces 400 units. What is the Total Expected Cost (TEC(q=400))? TEC(q=400)= C TM E(Leftovers|q=400) + C NE E(Short|q=400) =25,000 { 300 (0.3) + 200 (0.3) + 100 (0.1)} + 40,000 { 100 (0.05) + 200 (0.05)} =25,000 (160) + 40,000 (15) = 400,000 + 60,000 = \$460,000...
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