PPC

ASSIGNMENT 3

ROHIT MESHRAM
UB ID: RMESHRAM
UB #: 50058914

5.7

There can be mistake in his decision regarding the optimal number of newspapers to
purchase when he takes an average of the past data of daily demand. The reason being that if
the demand for a particular data is more than the order placed, he would be unable to meet
the demand of his customers which can result in negative inventory which is also known as
underage cost. Secondly, in case of oversupply, i.e. if the demand for a particular day is less
than the order, then it would result in overage cost.
In order to accurately measure the daily demand, the newsboy will have to take into
consideration both underage as well as the overage costs and find an optimal solution based on
the distribution function and critical ratio.

5.8

Given Data:
Cost Price = 08
Selling price = 35
Co = 8-3 = 5
And Profit = 35 8 = 27
Now,
Q* = *z +
No. of Bagels
sold in one day
0
5
10
15
20
25
30
35

Probability
0.05
0.10
0.10
0.20
0.25
0.15
0.10
0.05

(a)
No. of Bagels

Probability

F(Q)

0.05

0.05

0.1

0.15

10

0.1

0.25

15

0.2

0.45

20

0.25

0.7

25

0.15

0.85

30

0.1

0.95

35

0.05

Now,
Critical ratio = Cu/ (Cu+ Co) = 27/ (27+5) = 0.8437
The critical ratio for this problem corresponds to a value of F(Q) between Q = 20 and Q = 25.
Since bagels cant be fraction, the optimal solution would be to bake 25 bagels at the start of
the day.

(b) To approximate the discrete distribution with a normal distribution, it is expected that
the resulting solution be close to the answer that was obtained in part (a) because it is unlikely
that any of the values exactly equal the critical ration; but , the critical ratio will generally fall
in between two values of F(Q). Thus, by having the range of the values the critical ratio might
fall in, we can assume that the result of the normal distribution will be an approximate of the
discrete distribution.

(c)
Now,
From table A-4,
Z = 1.01
D= (0+5*0.10+10*0.10+15*0.20+20*0.25+25*0.15+30*0.10+35*0.05) = 18
No. of Bagels

Probability

(Di-D)2

0.05

324

0.1

169

10

0.1

64

15

0.2

20

0.25

25

0.15

49

30

0.1

144

35

0.05

289

2 = (1/(n-1))(Di-D)2 =79.29

= 8.905
Now
Q* = *z + = 8.905 * 1.01 + 18 = 26.99 27

5.9
Given Data:
C.P. = 50 cents
S.P. = 65 cents
Cu = 15 cents
C0 = 50 cents
Critical ratio = Cu/ (Cu +Co) =0.23
Lower
bound
value

Higher
bound
value

Midpoint

Frequency

F(Q)

100000
150001
200001
250001
300001
350001
400001

150000
200000
250000
300000
350000
400000
450000

125000
175000.5
225000.5
275000.5
325000.5
375000.5
425000.5

0.1
0.15
0.25
0.2
0.15
0.1
0.05

0.1
0.25
0.5
0.7
0.85
0.95
1

The critical ratio for this problem corresponds to a value of F(Q) between Q= [100000150000]and Q=[150001-200000].
Because we round up, the optimal solution is the higher range of Q= [150001-200000].
In this range too, we take the higher value for optimal reasons.
Hence, the number of cards that Crestview should print this year is 200000.

5.13

Given Data:
C=$1.50 each
K = $100 per order
I = 28%
=280*5=1400
= 77*2.236= 172.172
p = $ 12.80
= 5 months
h= IC = 0.28 * 1.5 = 0.42

(a)

We have
= 280 * 12 = 3360

EOQ = (2 * K / h ) = 1264.91 = Qo
Now, Ro can be calculated as
1-F (Ro) = Qo * h / ( p * )
1-F (Ro) = (1264.91 * 0.42) / (12.8 * 3360 ) = 0.0124
The corresponding z value is 2.24
Hence, z= 2.24
R = *z+
R = 172.172* 2.24 +1400 = 1785.66

The corresponding value of L(z) = 0.0044

Hence, n ( R ) = * L (z)
n( R ) = 172.172 * 0.0044 = 0.75755
Hence, Q1 = ( 2* *[K + p n ( R )]/h )1/2 = 1324.82
Using Q = 1324.82 in 1-F (Ro) = Qo * h / ( p * )
We get,
1-F (Ro) = (1324.82* 0.42) / (12.8 * 3360 ) = 0.0129
The corresponding z value is 2.23 and L(Z) =0.0045
n( R ) = 172.172 * 0.0045 = 0.7747
R1 = 172.172*2.23+1400= 1783.94
Q2 = ( 2*3360*[100 +12.8 * 0.7747/0.42)1/2 = 1326.14
Using Q = 326.4 in 1-F (Ro) = Qo * h / ( p * )
We get,
1-F (Ro) = (1326.14* 0.42) / (12.8 * 3360 ) = 0.0129
The corresponding z value is 2.23 and L(Z) =0.0045
n( R ) = 172.172 * 0.0045 = 0.7747
R2 = 172.172*2.23+1400= 1783.94
Q3 = ( 2*3360*[100 +12.8 * 0.7747/0.42)1/2 = 1326.14
Using Q = 1326.14 in 1-F (Ro) = Qo * h / ( p * )
We get,
1-F (Ro) = (1326.14* 0.42) / (12.8 * 3360 ) = 0.0129
The corresponding z value is 2.23 and L(Z) =0.0045
n( R ) = 172.172 * 0.0045 = 0.7747
R3 = 172.172*2.23+1400= 1783.94
Because Q2 = Q3 and R2 = R3
We may terminate the computations
Hence, we conclude that the optimal values of Q and R are (Q,R) = (1326,1783)

(b)

The holding cost is h*[Q/2 + R - ] = 0.42 * [1326/2 + 1783.94 - 1400] = $439.32

The setup cost is K*/Q = 100*3360/1326 = $ 253.40
The stock-out cost is p**n (R )/Q = 12.8*3360*0.7747/1326 = $25.12

(c)

Now,
G(Q)b = h*[Q/2 + R - ] + K*/Q + p**n (R )/Q =439.32+253.40+25 = $717.72
If = 0, Q = 1264.91 and R= = 1400
Hence, G(Q)c = h*[Q/2 + R - ] + K*/Q + p**n (R )/Q = 0.42 * [1264.91/2 + 14001400]+[100*3360/1264.91]+[12.8*3360*0.75755/1264.91]= 557.02
As the value reduces to 0, G(Q) decreases by $160.7

5.14
Given data is as follows:
C= $6 each
K = $ 15 per order
I = 30%
= 28*3.5 = 98
= 8 * 1.87 = 14.96=15
p = $10
= 14 weeks = 3.5 months (assuming 1 month = 4 weeks)
h = IC = 0.30 * 6 = 1.8

(a)

= 28 * 12 = 336
EOQ = (2 * K / h ) = 74.833 = Qo
Ro can be calculated as
1-F (Ro) = Qo * h / ( p * )
1-F (Ro) = (74.833 * 1.8) / (10 * 336) = 0.04
The corresponding z value is 1.75
Hence, z= 1.75
R = *z+
R=14.96* 1.75 +98 = 124.18
L(z) = 0.0162
Hence, n ( R ) = * L (z)
n( R ) = 14.96* 0.0162 = 0.2424
Hence,
Q1 = ( 2* *[K + p n ( R )]/h )1/2 = 80.64
Using Q = 80.64 in 1-F (Ro) = Qo * h / ( p * )
1-F (Ro) = (80.64 * 1.8) / (10 * 336) = 0.0432
The corresponding z value is 1.71
Hence, z= 1.71
R = *z+
R1=14.96* 1.71 +98 = 123.58
The corresponding value of L(z) = 0.0178
Hence, n (R) = * L (z)
n(R ) = 14.96* 0.0178 = 0.2663
Hence, Q2 = ( 2* *[K + p n ( R )]/h )1/2 = 81.2
Using Q = 81.2 in 1-F (Ro) = Qo * h / ( p * )
1-F (Ro) = (81.2 * 1.8) / (10 * 336) = 0.0435
The corresponding z value is 1.71
R = *z+
R2=14.96* 1.71 +98 = 123.58
The corresponding value of L(z) = 0.0178
Hence, n (R ) = * L (z)
n( R ) = 14.96* 0.0178 = 0.2663
Hence,
Q3 = ( 2* *[K + p n ( R )]/h )1/2 = 81.2
Using Q = 81.2 in 1-F (Ro) = Qo * h / ( p * )
1-F (Ro) = (81.2 * 1.8) / (10 * 336) = 0.0435
The corresponding z value is 1.75
Hence, z= 1.75
R = *z+
R3=14.96* 1.75 +98 = 124.18
Because Q2 = Q3 and R2 = R3
We may terminate the computations
Hence, we conclude that the optimal values of Q and R are (Q,R) = (81,124)

(b.) The safety-stock is s= R- = 124.18 98 = 26.18 => 26

5.15
(a) This is a Type-1 service level problem. Hence, Q=EOQ=75.24.
= 0.90
Using F(R) = 0.90, we get, z = 1.28
R = 14.96*1.28+98 = 117.14
(Q,R) = (74.8333,117.14)
n(R) = EOQ (1-)
n (R ) = *L(z) = 15*0.0475 = 0.7125
0. 7125=74.833*(1-)
Hence,
=0.9905
Hence, the required fill rate is 0.9905