Hand Calculation will be fine. I need very soon 1. (20 points) The year is 1994.

Question

Hand Calculation will be fine. I need very soon

1. (20 points) The year is 1994. Please Dont Stop the Music is a chain of mausic are now concerned with how to manage inventory for the new Pink For the foreseeable future, they estimate a demand of 10,000 copies per month fot the album. For every order they place, they need to pay a fixed fee of $500. Using this and some valuation for their holding cost, they compute the size of the optimal order. Floyd US. They The Division Bell. They find within a month that they underestimated the demand - the actual demand is 14,400 copies per month. (a) (5 p oints) They now need to re-compute the optimal order size. How does the optimal order siae change (by what % does it increase or decrease)? (5 points) 67 not going to b 14,400 copies per mon ks after they are pla es that demand is on re 2, weeks ired to

Explanation / Answer

Forecast demand, D = 10000 copies per month

Actual demand, D' = 14400 copies per month

Ordering cost, S = $ 500

Let Holding cost be H

Initla optimal order size based on forecast demand, Q = SQRT(2DS/H) = SQRT(2*10000*500/H)

Revised optimal order size based on actual demand, Q' = SQRT(2D'S/H) = SQRT(2*14400*500/H)  

Percent change in optimal order size = Q'/Q - 1 = SQRT(2*14400*500/H) / SQRT(2*10000*500/H) - 1

=SQRT(14400/10000) - 1

=0.20 or 20% increase

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