1. Ray's Satellite Emporium wishes to determine the best order size for its best-selling satellite dish. Ray has estimated the annual demand for this model at 10,000 units. His cost to carry one unit is $60 per year per unit, and he has estimated that each order costs $10 to place.
Using the EOQ model, how many should Ray order? Please provide the formula, at least one step of calculation, and the correct order size for full credit.(6 points)
2. Given the following information, formulate a continuous-review inventory management system. The item is demanded 50 weeks a year.
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Item cost
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$100
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Standard deviation of weekly demand
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Order cost
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$50
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25 per week
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Annual holding cost (%)
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10% of item cost
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Lead time
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2 weeks
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Annual demand
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25,000
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Service probability
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97%
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Average demand
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500 per week
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Compute the order quantity, the safety stock, and the reorder point. (16 points)
For order quantity, please provide the formula, at least one step of calculation, and the correct value for full credit.
For the safety stock, please provide the formula, at least one step of calculation, the correct z value, and the correct value.
For the reorder point, please at least one step of calculation and the correct answer for full credit. Round up the answers to the closest integer.
3. The following payoff table is provided for a print shop. The probability of low demand is 0.4 and the probability of high demand is 0.6.
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States of Nature (Demand)
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Alternatives
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Low
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High
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Option 1
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$10,000
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$30,000
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Option 2
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$5,000
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$40,000
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Option 3
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-$2,000
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$50,000
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(a) Calculate the EMVs of the three alternatives. For each alternative, please provide at least one step of calculation and the correct answer for full credit.
(b) Which alternative to choose under Maximax and why?
(c) Which alternative to choose under Maximin and why?
(d) Which alternative to choose using Equally Likely criterion and why?
(e) Calculate the EVwPI of the decision. Please provide at least one step of calculation and the correct answer for full credit.
(f) Calculate the EVPI of the decision. Please provide at least one step of calculation and the correct answer for full credit.