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Assignment 1
Assignment 1
18, S = $95
EOQ = sqrt (2DS/H) = 325.65 or 326 = order quantity.
Standard deviation of demand during lead time = sqrt ((E[L] × σ²) + (E[d]² × σL²)) = 77.77
BD ÷ ((sqrt 2π)QH × 77.77) = 2.637
Therefore, the safety stock is k = max{sqrt(2ln(2.637), 0.50} = max{1.3926, 0.50}
In this case, the safety factor is 1.3926, which is more than the minimum value.
Therefore, ROP = E[d] × E[L] + k × 77.77 = 289
1(b) Average time between stockouts = six months = 0.5 year.
Now, Q ÷ (D. TBS) = 325.65 ÷ (6240 × 0.5) = 0.104 < 1
Therefore, k = NORM.S.INV(1 – 0.104) = 1.259 which is larger than the minimum allowable
safety factor.
Therefore, SS = 1.259 × 77.77 = 97.9 or 98
ROP = 120 × 1.5 + 1.259 × 77.77 = 278
3(a) Co = V – s
Cu = p – V
Where p = unit revenue and V = unit cost.
Co = 99 – 49 = $50 and Cu = 569 – 99 = $470
P(D≤Q) = Cu/(Co + Cu)
The critical ration = 470/(50+470) = 0.9038, Z = (6565 – 5000)/1200 = 1.3042
Therefore, Optimal quantity = Zσ + 5000 = 6564.8 or 6565
3b(i) E[Lost Sales] = Go(Z) × σ
Go(Z) = 0.0451
Therefore, E[Lost Sales] = 0.0451 × 1200 = 54.12
3b(ii) E[Sales] = E[Demand] – E[Lost Sales] = 5000 – 54.12 = 4945.88
3b(iii) E[Leftover] = Q* - E[Sales] = 6565 – 4945.88 = 1619.12
3b(iv) E[Profit] = Cu × E[Sales] – Co × E[Leftover] = 470 × 4945.88 – 50 × 1619.12 =
$2,243,607.60
3b(v) In-Stock Probability = F(Q) = F(6565) = Φ(1.3042) = 0.9039
3b(vi) Fill Rate = E[Sales]/E[Demand] = 4945.88/5000 = 0.9892
3(c) If Q = 8000, Z = 2.5
Go(Z) = 0.00202
E[Lost Sales] = 2.424
E[Sales] = 4997.576
E[Leftover] = 3002.424
E[Profit] = Cu × E[Sales] – Co × E[Leftover] = $2,198,739.52
Loss profit per each phone model’s selling period = $2243607.60 - $2198739.52 = $44,868.08
4(a) Lot Size, Q = 10,000, ROP = 6000, Average weekly demand = 2000, Average demand per
year = 52 × 2000 = 104,000
Standard deviation of demand = 500, unit cost = $40, H = 0.25 × 40 = 10
E[DDLT] = 2000 × 2 = 4000
Safety Inventory = ROP – LR = 6000 – 4000 = 2000.
4(b) Standard deviation of demand during lead time = 500√2 = 707.11
CSL = NORMDIST(6000;4000;707.11;1) = 0.9977
Cu = HQ/(1-CSL)D = 10 × 10000/(104000(1 – 0.9977)) = $418.06
4(c) If Cu = $80
CSL* = (DCu – HQ)/DCu = 1 – (HQ/DCu) = 1 – (10 × 10000/104000 × 80) = 1 – 0.0120 = 0.988
K = 2.257
Therefore, Safety Stock = K × standard deviation of demand during lead time = 2.257 × 707.11 =
1596.