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3. Inventory control subject to uncertain demand a. In situations with uncertain demand, we distinguish between two different types of models, namely the (Q, R)-model and the Newsboy model. Explain shortly the difference between these models and in which situations they should be used.

3. Inventory control subject to uncertain demand a. In situations with uncertain demand, we distinguish between two different types of models, namely the (Q, R)-model and the Newsboy model. Explain shortly the difference between these models and in which situations they should be used.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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3. Inventory control subject to uncertain demand a. In situations with uncertain demand, we distinguish between two different types of models, namely the (Q, R)-model and the Newsboy model. Explain shortly the difference between these models and in which situations they should be used. b. A book and paper store distributes one specialized monthly magazine. When looking at the sales the last years, they have concluded that each issue of the magazine will sell between 1 and 20 copies and the probability is equal for each of these possibilities. The purchase price for the magazine is 30 kr. and the sales price is 80 kr. The store has an agreement with a second-hand store that buys unsold magazines for 10 kr. each. How many magazines should the store buy of each issue to maximize the profit over time? c. The book and paper store also distributes a city guidebook that is ordered from the publisher when needed. The purchase cost is 60 kr., and the store must assume a lead-time of three months from the order is placed and the guidebooks arrive. The store reckons an annual interest rate of 20 % to compute holding costs and estimates a cost of 40 kr. for a lost sale if the guidebook is requested when they are out of stock. The expense of placing an order is set to 100 kr. The demand of the guidebook can vary a great deal, but the average during a three-month period has been calculated to 125. The demand can be described by a normal distribution and the standard deviation is 15. Find the optimal value of the lot size, Q, and the reorder point, R, in this case, and calculate the annual relevant costs.
Transcribed Image Text:3. Inventory control subject to uncertain demand a. In situations with uncertain demand, we distinguish between two different types of models, namely the (Q, R)-model and the Newsboy model. Explain shortly the difference between these models and in which situations they should be used. b. A book and paper store distributes one specialized monthly magazine. When looking at the sales the last years, they have concluded that each issue of the magazine will sell between 1 and 20 copies and the probability is equal for each of these possibilities. The purchase price for the magazine is 30 kr. and the sales price is 80 kr. The store has an agreement with a second-hand store that buys unsold magazines for 10 kr. each. How many magazines should the store buy of each issue to maximize the profit over time? c. The book and paper store also distributes a city guidebook that is ordered from the publisher when needed. The purchase cost is 60 kr., and the store must assume a lead-time of three months from the order is placed and the guidebooks arrive. The store reckons an annual interest rate of 20 % to compute holding costs and estimates a cost of 40 kr. for a lost sale if the guidebook is requested when they are out of stock. The expense of placing an order is set to 100 kr. The demand of the guidebook can vary a great deal, but the average during a three-month period has been calculated to 125. The demand can be described by a normal distribution and the standard deviation is 15. Find the optimal value of the lot size, Q, and the reorder point, R, in this case, and calculate the annual relevant costs.
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