Question 1 (a) Consider the "newsboy problem". The newspaper vendor ordered 100 newspapers from the supplier in anticipation of demand for newspapers the next day. The newsvendor calculated the expected profit to be $150. Later, the newsvendor computed the critical ratio for the problem as 0.57. The probabilities of possible demand of the newspaper are shown in Table 1. Analyse whether the quantity the newsvendor ordered is the best quantity to maximise the expected profit. Demand Table 1: Newspaper demand distribution 25 50 75 100 125 150 Probability 0.10 0.15 0.20 0.30 0.15 0.10 marks) (b) The average weekly demand for a piece of respiratory equipment was found to be 25 units with a lead time of 3 weeks. The standard deviation of lead time demand is known to be 10 units. The company plans to provide a service level that is 47.7% more than the mean lead time demand. Both demand and lead time follow a normal distribution. The company determined that an order of 250 units is the optimal order quantity for the item. (i) Identify the ordering policy for the item. (ii) If the company decides not to keep any safety stock, what service level can it achieve?

Question 1 (a) Consider the "newsboy problem". The newspaper vendor ordered 100 newspapers from the supplier in anticipation of demand for newspapers the next day. The newsvendor calculated the expected profit to be $150. Later, the newsvendor computed the critical ratio for the problem as 0.57. The probabilities of possible demand of the newspaper are shown in Table 1. Analyse whether the quantity the newsvendor ordered is the best quantity to maximise the expected profit. Demand Table 1: Newspaper demand distribution 25 50 75 100 125 150 Probability 0.10 0.15 0.20 0.30 0.15 0.10 marks) (b) The average weekly demand for a piece of respiratory equipment was found to be 25 units with a lead time of 3 weeks. The standard deviation of lead time demand is known to be 10 units. The company plans to provide a service level that is 47.7% more than the mean lead time demand. Both demand and lead time follow a normal distribution. The company determined that an order of 250 units is the optimal order quantity for the item. (i) Identify the ordering policy for the item. (ii) If the company decides not to keep any safety stock, what service level can it achieve?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 5CE: Refer to Cornerstone Exercise 3.4 for data on Dohini Manufacturing Companys purchasing cost and...

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Refer to Cornerstone Exercise 3.4 for data on Dohini Manufacturing Companys purchasing cost and number of purchase orders. The controller for Dohini Manufacturing ran regression on the data, and the coefficients shown by the regression program are: Required: 1. Construct the cost formula for the purchasing activity showing the fixed cost and the variable rate. 2. If Dohini Manufacturing Company estimates that next month will have 430 purchase orders, what is the total estimated purchasing cost for that month? (Round your answer to the nearest dollar.) 3. What if Dohini Manufacturing wants to estimate purchasing cost for the coming year and expects 5,340 purchase orders? What will estimated total purchasing cost be? (Round your answer to the nearest dollar.) What is the total fixed purchasing cost? Why doesnt it equal the fixed cost calculated in Requirement 1?
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The controller for Dohini Manufacturing Company felt that the number of purchase orders alone did not explain the monthly purchasing cost. He knew that nonstandard orders (for example, one requiring an overseas supplier) took more time and effort. He collected data on the number of nonstandard orders for the past 12 months and added that information to the data on purchasing cost and total number of purchase orders. Multiple regression was run on the above data; the coefficients shown by the regression program are: Required: 1. Construct the cost formula for the purchasing activity showing the fixed cost and the variable rate. 2. If Dohini Manufacturing Company estimates that next month will have 430 total purchase orders and 45 nonstandard orders, what is the total estimated purchasing cost for that month? (Round your answer to the nearest dollar.) 3. What if Dohini Manufacturing wants to estimate purchasing cost for the coming year and expects 5,340 purchase orders and 580 nonstandard orders? What will estimated total purchasing cost be? What is the total fixed purchasing cost? Why doesnt it equal the fixed cost calculated in Requirement 2? (Round your answers to the nearest dollar.)