Assignment Problems (54 points in total):
1. Ray’s Satellite Emporium wishes to determine the best order size for its best-selling
satellite dish. Ray has estimated the annual demand for this model at 10,000 units. His
cost to carry one unit is $60 per year per unit, and he has estimated that each order
costs $10 to place.
Using the EOQ model, how many should Ray order? Please provide the formula, at
least one step of calculation, and the correct order size for full credit. (6 points)
2. Given the following information, formulate a continuous-review inventory management
system. The item is demanded 50 weeks a year.
Item cost
Order cost
Annual holding cost (%)
Annual demand
Average demand
$100
$50
10% of item cost
25,000
500 per week
Standard deviation
of weekly demand
Lead time
Service probability
25 per week
2 weeks
97%
Compute the order quantity, the safety stock, and the reorder point. (16 points)
For order quantity, please provide the formula, at least one step of calculation, and the
correct value for full credit.
For the safety stock, please provide the formula, at least one step of calculation, the
correct z value, and the correct value.
For the reorder point, please at least one step of calculation and the correct answer for
full credit. Round up the answers to the closest integer.
3. The following payoff table is provided for a print shop. The probability of low demand is
0.4 and the probability of high demand is 0.6.
States of Nature (Demand)
Alternatives
Low
High
Option 1
$10,000
$30,000
1
Option 2
$5,000
$40,000
Option 3
-$2,000
$50,000
(a) Calculate the EMVs of the three alternatives. For each alternative, please provide at
least one step of calculation and the correct answer for full credit. (12 points)
(b) Which alternative to choose under Maximax and why? (4 points)
(c) Which alternative to choose under Maximin and why? (4 points)
(d) Which alternative to choose using Equally Likely criterion and why? (4 points)
(e) Calculate the EVwPI of the decision. Please provide at least one step of calculation
and the correct answer for full credit. (4 points)
(f) Calculate the EVPI of the decision. Please provide at least one step of calculation
and the correct answer for full credit. (4 points)
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