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41. A manager is góing 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 1 2 3 Probability 10 50 25 15

41. A manager is góing 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 1 2 3 Probability 10 50 25 15

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
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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 1 2 Probability 10 .50 25 15 600 Chapter Thirteen Inventory Management 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? a. Use the ratio method. b. Use the tabular method (see Table 13.3).
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 1 2 Probability 10 .50 25 15 600 Chapter Thirteen Inventory Management 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? a. Use the ratio method. b. Use the tabular method (see Table 13.3).
Expert Solution
Step 1
  1. Ratio method –

Number

Probability

Cumulative probability

0

0.10

0.10

1

0.50

0.60

2

0.25

0.85

3

0.15

1.00

 

Cost of idle equipment = $500 per day × 2 days = $1000

Cost of excess inventory= Unit cost - salvage value 

                                       = $200 - $50 = $150

 

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