Briana Teifke HW7

Green Thumb, a manufacturer of lawn care equipment, has introduced a new product. The anticipated demand is normally distributed with a mean of = 100 and a standard deviation of = 40. Each unit costs $150 to manufacture and the introductory price is to be $200 to achieve this level of sales. Any unsold units at the end of the season are unlikely to be very valuable and will be disposed off in a fire sale for $50 each. It costs $20 to hold a unit in inventory for the entire season. How many units should Green Thumb manufacture for sale? What is the expected profit from this policy?

Inputs Anticipate demand Standard deviation Unit costs Sales price Disposal value Inventory holding costs

100 40 $150 $200 $50 $20

Salvage value Cost of understocking Cost of overstocking Outputs Optimal cycle service level Optimal lot size Expected profits

$30 $50 $120

0.2941 78.34 $2,657

(based on equation 13.1) (based on equation 13.2) (based on equation 13.3)

CR - 4/16/2014 8:24 PM

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223060692.xlsx.ms_office - VALUES

Excersise 13-1:
The manager at Sportmart store, has to decide on the number of skis to purchase for the winter season. Considering past demand data and weather forecasts for the year, management has forecast demand to be normally distributed with mean of =350 and a standard deviation of =100. Each pair of skis costs c=$100 and retails for p=$250. Any unsold skis at the end of the season are disposed of for $85. Assume that it costs $5 to hold a pair of skis in inventory for the season. Evaluate the number of skis that the manager should order to maximize expected profits.

Inputs Anticipate demand Standard deviation Unit costs Sales price Disposal value Inventory holding costs

100 40 150 200 50 20

Salvage value Cost of understocking Cost of overstocking Outputs Optimal cycle service level Optimal lot size Expected profits

=C21-C22 =C20-C19 =C19-C25

=C26/(C26+C27) =NORMINV(C30,C17,C18)

=(C20-C25)*C17*NORMSDIST((C31-C17)/C18)-(C20-C25)*C18*NORMDIST((C31-C17)/C18,0,1,0)-C

CR - 4/16/2014 8:24 PM

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223060692.xlsx.ms_office - FORMULAS