Midterm2008spring - MS 405 Midterm I Spring 2009 Question...

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MS 405 Midterm I Spring 2009 Question 1. ( 50 points ) Petkim has a contract with one of its customers, Tofaş, to supply a unique liquid chemical product that is used by Tofaş in the manufacture of a lubricant for Doblo’s engines. Because of the chemical process used by Petkim, batch size for the liquid chemical product must be 1000 kgs. Tofaş has agreed to adjust manufacturing to the full batch quantities, and will order either one, two, or three batches every three months. Since an aging process of one month is necessary for the product, Petkim will have to make its production (how much to make) decision before Tofaş places an order. Thus, Petkim can list the product demand alternatives of 1000, 2000, or 3000 kgs, but the exact demand is unknown. Unfortunately, Petkim’s product cannot be stored more than two months without degenerating into a viscous and highly corrosive toxic compound, linked in laboratory tests to the Ebola virus. Petkim’s manufacturing costs are $150 per kg, and the product sells at the fixed contract price of $200 per kg. If Tofaş orders more than Petkim has produced, Petkim has agreed to absorb the added cost of filling the order by purchasing a higher quality substitute product from As Kimya, another chemical firm. The substitute As Kimya product, including transportation expenses, will cost Petkim $240 per kg. Since the product cannot be stored more than two months, Petkim cannot inventory excess production until Tofaş’s next three-month order. Therefore, if Tofaş’s current order is less than the amount that Petkim has produced, the excess production will be reprocessed and valued at $50 per kg. The inventory decision in this problem is how much Petkim should produce given the costs and the possible demands of 1000, 2000, and 3000 kgs. From historical data and an analysis of Tofaş’s future demands, Petkim has assessed the probability distribution for demand shown in the table below.
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This note was uploaded on 12/19/2011 for the course ECON Econ203 taught by Professor Majdabpadawnan during the Spring '11 term at University of Maribor.

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Midterm2008spring - MS 405 Midterm I Spring 2009 Question...

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