5.

a) c0
cu

= .08 - .03 = .05

= .35 - .08 = .27
Critical ratio =

.27
.05 + .27

= .84375

From the given distribution, we have:

Q

f(Q)

F(Q)

.05

.05

.10

.15

10

.10

.25

15

.20

.45

20

.25

.70
< - - - - .84375

25

.15

.85

30

.10

.95

35

.05

1.00

Since the critical ratio falls between 20 and 25 the optimal is Q = 25 bagels.
b) The answers should be close since the given distribution appears to be close to the normal.
c)

2 =

xf(x)
x2f(x)
=

= (0)(.05) + (5)(.10) +...+(35)(.05) = 18

- 2 = 402.5 - (18)2 = 78.5
(2)(32)(1032)
.36

8.86

The z value corresponding to a critical ratio of .84375 is 1.01.

Hence,
Q* =
5.9

cu
c0

=
=

z + = (8.86)(1.01) + 18 = 26.95 ~ 27.

.65 -.50 = .15

.50

Critical ratio =

.15
= .231
.15 + .50

The Cumulative Distribution Function of Demand is:

Quantity Sold

CDF

100,000-150,000

.10
< - - - Critical Ratio = .231

150,001-200,000

.25

Using linear interpolation, the optimal solution is:

Q

5.10

.231 .10
50,000 + 150,000 = 193,667.
.25 .10

a) A period is three months. Holding cost per year is $500, which means that the cost for a 3month period is:
500/4 = $125 = c0
cu = 250 (emergency shipment cost)
250
2
=
250 + 125 3

Critical ratio =
Hence Q
b)

Critical ratio

c0 = 125
*

F(Q ) = .5454
*

= .44.

= z + = (6)(.44) + 60 = 62.64 63 cars

cu = 150

= .667 z

z +

150
150 + 125

= .5454

= .11

= (6)(.11) + 60 = 60.66 ~ 61 cars.

c) This corresponds to an infinite horizon problem with lost sales. From part 3 of Appendix B at
the end of the chapter.
cu = lost profit = $3,500
c0 = holding cost = 125
Critical ratio =

3500
3500 + 125

= .9655

z = 1.82 which gives Q = (6)(1.82) + 60 = 70.92 ~ 71 cars.

5.11

a) X
s2
b)

= 34.0
= 204.4 (s = 14.3)
cu = 60 - 40 = 20
c0 = 40 - 29 = 11
Critical ratio =
z = .37,

c)
Value

20
20 + 11

Q* =

= .6452

z + = (14.3)(.37) + 34 = 39.3 39

#Times
Observed

Relative
Freq.

Cum
Freq.

10

.1

.1

20

.1

.2

30

.4

.6
< - - - critical ratio
= .6452

40

.2

.8

50

.1

.9

60

.1

1.0

33 by linear interpolation.

d) The normal approximation is not very accurate since the order quantity it recommends is almost
20% too large.
5.12

co

= 28.50 - 20.00 + (.4)(28.50) = 19.90

cu

= 150 - 28.50 = 121.50.

Critical Ratio

= cu/(cu + co)
= 121.5/(121.5 + 19.9) = .86

a) Demand is assumed to be uniform from 50 to 250. We wish to find Q satisfying:

Area = 0.86

50

250

From the picture it follows that

(Q - 50)/200 = .86,

Q = (.86)(200) + 50 =

222.

b) In this case the demand distribution is assumed to be normal with mean 150 and standard
deviation 20. We wish to find Q to solve:
F(Q) = .86
From Table A-4 we have that z = 1.08, giving:
Q = +

z = 150 + (20)(1.08) = 172.

c) The uniform distribution in this case has a higher variance. The formula for the variance of a
uniform variate on (a,b) is (b-a)2/12. Substituting b = 250 and a = 50 gives a variance in
part a) of 3333. The variance in part b) is (20)2 = 400.
5.13

a)

h
K
p

=
=
=
=

(1.50)(.28) = .42
100
12.80
(280)(12) = 3360

 = (280)(5) = 1400
= 77 5 = 172.18

2K
+
h

EOQ = Q0 =

1 - F(R1)

Qh
(1265)(.42)
=
p (12.80)(3360)

z1 = 2.24,
Q1

2
[K + pn(R)] =
h

= .0124
n(R1) = .75

(2)(3360)
[100 + 12.80(.75)]
.42

Qh (1324)(.42)
=
p 12.80(3360)

z2 = 2.23

= 1324

.0129

L(z2) = .004486

2(3360)
[100 + 12.80(.77)]
.42

= 1265

L(z1) = .0044,

1 - F(R2) =

Q2

(2)(100)(3360)
.42

n(R2) = .77

= 1326

Close enough to stop.

z = 2.23, R = z + = (172.18)(2.23) + 1400 =1784
Optimal (Q,R) = (1326,1784)

b)

G(Q,R)

K
Q
pn(R)
+ h + R +
2

Q
Q

K (100)(3360)
=
Q
1326

Q + R
2

$253.39

$439.74

pn(R) (12.80)(3360)(.77)
=
Q
1326

= $24.97

c) = 0 EOQ solution
cost =

2Kh = (2)(100)(3360)(.42)

= $531.26

G(Q,R) = $718.10
cost of uncertainty = $718.10 - 531.26 = $186.84
yearly.
5.14

a)

Note: We assume 4 weeks/month and 48 weeks/year.

Monthly demand is normal ( = 28, = 8)
= 14 weeks = 3.5 months LTD ~ normal
with = (28)(3.5) = 98
= (8)
h

p
K

=
=
=
=
=

3.5

= 15

Ic = (.3)(6) = 1.8
(28)(12) = 336 year
10
15
98

Q0 = EOQ =
F(R1) =

(2)(336)(15)
1.8

(75)(1.8)
(10)(336)

= 75

= .04 z = 1.75 giving

R1 = z + = 124
and n(R1) = L(z) = .2426
Q1 =
F(R2) +

(2)(336)
(15 + (10)(.2426))
1.8
(81)(1.8) =
(10)(336)

= 81

.0434

z = 1.71 R2 = z + = 124.
Conclude that (Q,R) = (81,124)
b)

S = R - = 124 - 98 = 26 units.

Since R2 = R1, we stop.

5.15

a) Type 1 service of 90%

EOQ = 75 (from 13 (a))
F(R) = .10, z = 1.28, R = z + = (15)(1.28) + 98 = 117
Q,R) = (75,117)
b) Find Type II service level achieved in part (a).
n(R)
L(z) (15)(.0475)
=1 =
=
Q
Q
75

5.16

.0095

= .9905 (99.05% service level)

Type 1 service of 95%

Q = EOQ = 1265
R
F(R) = .95,

5.17

= 1.645, which gives R = 1683.

Type 2 service of 95%. Requires iterative solution.

Q0 = EOQ = 1265
n(R1) = (1 - )Q = (.05)(1265) = 63.25
L(z1) =

n(R1 )

63.25
172.18

= .3673

z1 = .065, 1 - F(R1) = .474

Q1 =

n(R)
n(R)
+ (EOQ) 2 +
1 F(R)
1 F(R)

n(R)
63.25
2
+ (1265) +
1 F(R)
.474

= 1405

n(R2) = (1 - )Q1 = (.05)(1405) = 70.25

L(z2) =

70.25
172 .18

= .4080

z2 -.02

1 - F(R2) = .508
Q2

R2 = z + = 1397

n(R)
70.25
2
+ (1265) +
1 F(R)
.508

= 1411

n(R3) = (.05)(1411) = 70.54

L(z3) = .4097,

z3 -.02,

R3 = 1397

Same value. Stop.

(Q,R) = (1411,1397)
Imputed p =

5.18

Qh
(1411)(.42)
=
(1 F(R)) (3360)(.508)

= $ .35

Holding cost is h[Q/2 + R - ].

Using a type 1 service objective, the policy obtained was (Q,R) = (1265, 1683) which results in an
average annual holding cost of $384.51.
Using a type 2 service objective, the policy was (Q,R) = (1411,1397) which results in an average
annual holding cost of $295.05
The difference is $89.46

5.19

Weekly demand has mean 38 and standard deviation

130

LTD has = 38 x 3 = 114

and =
a)

1 - F(R) =
z = 2.59,

b)

130 =

19.75

Qh (500)(.40)(18.80)
=
p
(400)(1976)

= .004757

R = z + = 165

Must determine optimal Q by iteration

EOQ = 198 = Q0
1 - F(R0) =

(198)(7.52)
(400 )(1976)

= .0018838

z = 2.90, L(z) = .000542, n(R0) = L(z) = .0107

Q =

2 [K + pn(R)]
h

= 204

This value of Q turns out to be optimal. (must iterate once more to obtain R = 171).
c) Use formula G(Q,R) = h[Q/2 + R - ] + K/Q + pn(R)/Q
Substitute (Q,R) = (500,165) from part (a)
= (204,171) from part (b)
Obtain G(500,165)

$2606.75
> cost = $641.59 yearly

G(204,171)

$1965.16

d) Use the relationship n(R) = (1 - )Q to determine R and the fact that n(R) = sL(z).
Hence, L(z) =

n(R)

(1 )Q

(.01)(198)
19.75

= .10026

From Table B-4, z .90. Since R = z + we obtain

R = (19.75)(.90) + 114 = 132.
The imputed shortage cost is:
^p

Qh
((1 F(R))

= $4.09.