2. For our online store for gadgets from Session 8 HW, and we know that one new

Question

2. For our online store for gadgets from Session 8 HW, and we know that one new product’s demand is normally distributed with an expected mean demand for the season of 300 and a standard deviation of 300. The product sells for $100, the cost of the product is $50, and the salvage is $20. We have now, however, a second supplier, which is more expensive, but which is very close and can provide a second order with a short lead time after the beginning of the season (Reactive Capacity). The cost of the product for this supplier is $60. 2a. What is the cost of underage and the cost of overage for the gadget store with this second supplier? Cu = c1 – c2 (this is the “premium” the online store pays for the second order vs. the first order) Co = c1 – v (no change) Select one: a) Cu = $50, Co = $30 b) Cu = $10, Co = $20 c) Cu = $10, Co = $30 2b. What is now the optimal order quantity for the gadget store with the second supplier? 2/4 Hint: Critical Ratio = Cu/(Cu + Co). In this case the critical ration = 0.2500. Then look up the corresponding z value and convert to Q *= + z Select one: a) 99 b) 150 c) 396 d) 410

Explanation / Answer

Co, The cost of overage = Cost per unit for the first supplier – Salvage price per unit = $50 - $20 = $30

ANSWER :Cu = $10. Co = $30

Corresponding Z value for probability 0.25 = NORMSINV ( 0.25 ) =- 0.674

Given are following data :

Mean demand for the season = m = 300

Standard deviation of demand for the season = Sd = 300

Therefore, Optimum order quantity = m + Z.Sd = 300 - 0.674 x 300 = 399 – 202.2 = 97.8

The value 97.8 is nearest to the value 99 out of the given options . Therefore , correct answer will be “ a) 99”

OPTIMUM ORDER QUANTITY WITH THE SECOND SUPPLIER = 99

ANSWER :Cu = $10. Co = $30

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