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TABLE 13.3 Expected cost for each possible outcome And the demand probabilities are If the stocking The expected cost will be 2 3 prob. = .20 prob. =.40 prob. = .30 prob. =.10 level is 1 unit short .40(1) ($4,200) = $1,680 S=D 2 units short .30(2) 3 units short .10(3) $0 ($4,200) = $2,520 ($4,200) = $1,260 $5,460 1-unit excess .20(1) ($800) = $160 2 units short .10(2) ($4,200) = $840 S=D 1 unit short .30(1) ($4,200) = $1,260 $0 $2,260 2-unit excess .20(2) ($800) = $320 1-unit excess .40(1) ($800) = $320 S=D 1 unit short .10(1) ($4,200) = $420 $0 $1,060 2-unit excess .40(2) ($800) = $640 1-unit excess .30(1) ($800) = $240 3-unit excess .20(3) S=D ($800) = $480 $0 $1,360

TABLE 13.3 Expected cost for each possible outcome And the demand probabilities are If the stocking The expected cost will be 2 3 prob. = .20 prob. =.40 prob. = .30 prob. =.10 level is 1 unit short .40(1) ($4,200) = $1,680 S=D 2 units short .30(2) 3 units short .10(3) $0 ($4,200) = $2,520 ($4,200) = $1,260 $5,460 1-unit excess .20(1) ($800) = $160 2 units short .10(2) ($4,200) = $840 S=D 1 unit short .30(1) ($4,200) = $1,260 $0 $2,260 2-unit excess .20(2) ($800) = $320 1-unit excess .40(1) ($800) = $320 S=D 1 unit short .10(1) ($4,200) = $420 $0 $1,060 2-unit excess .40(2) ($800) = $640 1-unit excess .30(1) ($800) = $240 3-unit excess .20(3) S=D ($800) = $480 $0 $1,360

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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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?
a. Use the ratio method.
b. Use the tabular method (see Table 13.3).

TABLE 13.3 Expected cost for each possible outcome And the demand probabilities are If the stocking The expected cost will be 2 3 prob. = .20 prob. =.40 prob. = .30 prob. =.10 level is 1 unit short .40(1) ($4,200) = $1,680 S=D 2 units short .30(2) 3 units short .10(3) $0 ($4,200) = $2,520 ($4,200) = $1,260 $5,460 1-unit excess .20(1) ($800) = $160 2 units short .10(2) ($4,200) = $840 S=D 1 unit short .30(1) ($4,200) = $1,260 $0 $2,260 2-unit excess .20(2) ($800) = $320 1-unit excess .40(1) ($800) = $320 S=D 1 unit short .10(1) ($4,200) = $420 $0 $1,060 2-unit excess .40(2) ($800) = $640 1-unit excess .30(1) ($800) = $240 3-unit excess .20(3) S=D ($800) = $480 $0 $1,360
Transcribed Image Text:TABLE 13.3 Expected cost for each possible outcome And the demand probabilities are If the stocking The expected cost will be 2 3 prob. = .20 prob. =.40 prob. = .30 prob. =.10 level is 1 unit short .40(1) ($4,200) = $1,680 S=D 2 units short .30(2) 3 units short .10(3) $0 ($4,200) = $2,520 ($4,200) = $1,260 $5,460 1-unit excess .20(1) ($800) = $160 2 units short .10(2) ($4,200) = $840 S=D 1 unit short .30(1) ($4,200) = $1,260 $0 $2,260 2-unit excess .20(2) ($800) = $320 1-unit excess .40(1) ($800) = $320 S=D 1 unit short .10(1) ($4,200) = $420 $0 $1,060 2-unit excess .40(2) ($800) = $640 1-unit excess .30(1) ($800) = $240 3-unit excess .20(3) S=D ($800) = $480 $0 $1,360
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