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41. A manager is going to purchase new processing equipment and must decide on the number of spare parts to order with the new equipment. The spares cost $200 each, and any unused spares will have an expected salvage value of $50 each. The probability of usage can be described by this distribution: Number 01 2 3 Probability .10 .50 .25 .15 If a part fails and a spare is not available, two days will needed to obtain a replacement and install it. The cost for idle equipment is $500 per day. What quantity of spares should be ordered? Page 553 a. Use the ratio method. b. Use the tabular method (see Table 12.3).

41. A manager is going to purchase new processing equipment and must decide on the number of spare parts to order with the new equipment. The spares cost $200 each, and any unused spares will have an expected salvage value of $50 each. The probability of usage can be described by this distribution: Number 01 2 3 Probability .10 .50 .25 .15 If a part fails and a spare is not available, two days will needed to obtain a replacement and install it. The cost for idle equipment is $500 per day. What quantity of spares should be ordered? Page 553 a. Use the ratio method. b. Use the tabular method (see Table 12.3).

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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41. A manager is going to purchase new processing equipment and must decide on the number of spare parts to order with the new equipment. The spares cost $200 each, and any unused spares will have an expected salvage value of $50 each. The probability of usage can be described by this distribution: Number 0 1 2 3 Probability .10 .50 .25 .15 If a part fails and a spare is not available, two days will be needed to obtain a replacement and install it. The cost for idle equipment is $500 per day. What quantity of spares should be ordered? Page 553 a. Use the ratio method. b. Use the tabular method (see Table 12.3).
Transcribed Image Text:41. A manager is going to purchase new processing equipment and must decide on the number of spare parts to order with the new equipment. The spares cost $200 each, and any unused spares will have an expected salvage value of $50 each. The probability of usage can be described by this distribution: Number 0 1 2 3 Probability .10 .50 .25 .15 If a part fails and a spare is not available, two days will be needed to obtain a replacement and install it. The cost for idle equipment is $500 per day. What quantity of spares should be ordered? Page 553 a. Use the ratio method. b. Use the tabular method (see Table 12.3).
TABLE 12.3 Expected cost for each possible outcome 0 If the stocking level is prob. = .20 0 $0 1 1-unit excess.20(1) ($800) = $160 2-unit excess.20(2) ($800) = $320 3-unit excess.20(3) ($800) - $480 P 2 3 And the demand probabilities are 1 2 prob. = .40 prob. = .30 1 unit short.40(1) ($4,200) - $1,680 S = D SO 1-unit excess .40(1) ($800) = $320 2-unit excess .40(2) ($800) - $640 2 units short.30(2) ($4,200) - $2,520 1 unit short.30(1) ($4,200) = $1,260 S = D $0 1-unit excess.30(1) ($800) - $240 3 prob. = .10 3 units short.10(3) ($4,200) - $1,260 2 units short.10(2) ($4,200) = $840 1 unit short.10(1) ($4,200) = $420 S = D $0 The expected cost will be $5,460 $2,260 $1,060 $1,360
Transcribed Image Text:TABLE 12.3 Expected cost for each possible outcome 0 If the stocking level is prob. = .20 0 $0 1 1-unit excess.20(1) ($800) = $160 2-unit excess.20(2) ($800) = $320 3-unit excess.20(3) ($800) - $480 P 2 3 And the demand probabilities are 1 2 prob. = .40 prob. = .30 1 unit short.40(1) ($4,200) - $1,680 S = D SO 1-unit excess .40(1) ($800) = $320 2-unit excess .40(2) ($800) - $640 2 units short.30(2) ($4,200) - $2,520 1 unit short.30(1) ($4,200) = $1,260 S = D $0 1-unit excess.30(1) ($800) - $240 3 prob. = .10 3 units short.10(3) ($4,200) - $1,260 2 units short.10(2) ($4,200) = $840 1 unit short.10(1) ($4,200) = $420 S = D $0 The expected cost will be $5,460 $2,260 $1,060 $1,360
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