Solutions For Chapter 5

Solutions To Problems From Chapter 5

5.3 a) X = 32
s = 9.55

b) Interval #Obs. Frequency

<20 4 .111
20-27 8 .222
28-33 9 .250
34-37 4 .111
38-43 6 .167
>43 5 .139

Total 36 1.000

Let X = number of gallons used in one week. Then

P{X ≤ 19} = P(Z<(19 – 32)/9.55) = P(Z < -1.36) = 0.869

Other probabilities are computed in a similar fashion giving:

Interval Probability Observed Frequency

X = 19 .0869 .1111
19 < X = 27 .2146 .2222
27 < X = 33 .2383 .2500
33 < X = 37 .1587 .1111
37 < X = 43 .1764 .1670
43 < X .1251 .1380

Total 1.0000 1.0000

Clearly there is a very close agreement between the probabilities and the observed
2
frequencies. (A formal χ2 goodness of fit test gives χ = .859 from which one
concludes that the normal provides a very good fit.

c) Let Y = X1 + X2 + ... + X6
Then E(Y) = (6)(32) = 192

σY = (6)(9.457) 2 = 23.385

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Production and Operations Analysis, Fourth Edition

 200 − 192 
P{Y ≤ 200} = P Z ≤ = P{Z ≤ .342} = .6331
 23.385 

5.6 a) If the company has received firm orders for furniture, then they should be able to
determine how much glue will be required.

b) No. If the exact pattern of future demands were known, then a model should be used
that treats demand as deterministic. It might be advantageous to use a random
demand model if the calculations were much simpler and the penalties of using a
suboptimal solution not very high.

5.7 If he only keeps track of the number of sales, he has no way to accurately estimate the
demand since demand = sales + lost sales. He would need some way to gauge the lost
sales. One method would be to increase his supply for a period of time so that he would
be able to meet all demand.

5.8 a) c0 = .08 - .03 = .05

cu = .35 - .08 = .27

.27
Critical ratio = = .84375
.05 + .27

From the given distribution, we have:

Q f(Q) F(Q)

0 .05 .05
5 .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.

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 Solutions For Chapter 5

b) The answers should be close since the given distribution appears to be close to the
normal.

c) µ = ∑xf(x) = (0)(.05) + (5)(.10) +...+(35)(.05) = 18

σ2 = ∑x2f(x) - µ2 = 402.5 - (18)2 = 78.5

(2)(32)(1032)
σ = .36 = 8.86

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

Hence,

Q* = σz + µ = (8.86)(1.01) + 18 = 26.95 ~ 27.

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

Q 250
50

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

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Production and Operations Analysis, Fourth Edition

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 = µ + σz = 150 + (20)(1.08) = 172.

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

5.15 a) Type 1 service of 90%

EOQ = 75 (from 13 (a))

F(R) = .10, z = 1.28, R = σz + µ = (15)(1.28) + 98 = 117

Q,R) = (75,117)

b) Find Type II service level achieved in part (a).

n(R) σL(z) (15)(.0475) = .0095
=1−β = =
Q Q 75

⇒ β = .9905 (99.05% service level)

5.19 Weekly demand has mean 38 and standard deviation 130

LTD has µ = 38 x 3 = 114

and σ = 3 130 = 19.75

a) 1 - F(R) = Qh (500)(.40)(18.80) = .004757

=
pλ (400)(1976)

z = 2.59, R = σz + µ = 165

b) Must determine optimal Q by iteration

EOQ = 198 = Q0

1 - F(R0) = (198)(7.52) = .0018838

(400)(1976)

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 Solutions For Chapter 5

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

Q = 2 λ [K + pn(R)] = 204
h

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 - µ] + Kλ/Q + pλn(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 - β)Q to determine R and the fact that n(R) = σ
sL(z).

Hence, L(z) = n(R) (1 − β )Q (.01)(198) = .10026

= =
σ σ 19.75

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

R = (19.75)(.90) + 114 = 132.

The imputed shortage cost is:

^p = Qh
= $4.09.
λ ((1 − F(R))

5.25 a) Cum Fraction

Annual Annual of
Item Volume Profit Profit Profit Total

Costume Jewelry 1900 $15.00 28500.00 28500.00 0.41

Novelty Gifts 2050 $12.25 25112.50 53612.50 0.76 A

Earrings 1285 $3.50 4497.50 58110.00 0.83

Children's Clothes 575 $6.85 3938.75 62048.75 0.88
Men's Jewelry 875 $4.50 3937.50 65986.25 0.94 B

Tee Shirts 1550 $1.25 1937.50 67923.75 0.97

Greeting Cards 3870 $0.40 1548.00 69471.75 0.99

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Production and Operations Analysis, Fourth Edition

Chocolate Cookies 7000 $0.10 700.00 70171.75 1.00 C

b) The cookies attract customers to the store. (In retail parlance, it would be known as a
loss leader.)

5.26 Exchange curves provide management with the opportunity of observing the effect of
various trade-offs. Two exchange curves considered in this chapter were

1 Replenishment Frequency and Value of Inventory.

As the ratio of K/I is increased, the value of lot sizes increase. When lot sizes
increase, the average inventory levels increase and the frequency of replenishment
decreases. The optimal point along this curve provides the proper trade-off of
replenishment frequency and the investment in inventory.

2. Investment in Safety Stock and Service Level.

As the service level is increased (either α or fl), the size and hence, the value of
safety stock increases. This curve allows management to see clearly the cost
consequences of improving service levels.

5.27 In each case we must compute

_______
Q1 = √2Kλi/Ici for K/I = 100, 200, 500, 1,000

8 
8
CiQi λ
and then determine ∑ 2 and ∑  Qi  to obtain
i =1 i =1 i

a point on the exchange curve. The calculations are summarized below:

Volume Cost EOQ Value Freq K/I

Item (λi) (Ci) (Qi) (CiQi/2) (λ/Qi)

Costume Jewelry 1900 12.00 178 1068.00 10.67 100

Novelty Gift 2050 12.50 181 1131.25 11.33
Earrings 1285 4.80 231 554.40 5.56
Children's Clothes 575 8.80 114 501.60 5.04
Men's Jewelry 875 8.00 148 592.00 5.91
Tee Shirts 1550 3.00 321 481.50 4.83
Greeting Cards 3870 0.50 1244 311.00 3.11
Chocolate Cookies 7000 0.40 1871 374.20 3.74

Totals 5013.95 50.20

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 Solutions For Chapter 5

Volume Cost EOQ Value Freq K/I

Item (λi) (Ci) (Qi) (CiQi/2) (λ/Qi)

Costume Jewelry 1900 12.00 252 1512.00 7.54 200

Novelty Gifts 2050 12.50 256 1600.00 8.01
Earrings 1285 4.80 327 784.80 3.93
Children's Clothes 575 8.80 162 712.80 3.55
Men's Jewelry 875 8.00 209 836.00 4.19
Tee Shirts 1550 3.00 455 682.50 3.41
Greeting Cards 3870 0.50 1760 440.00 2.20
Chocolate Cookies 7000 0.40 2646 529.20 2.65

Totals 7097.30 35.46

Volume Cost EOQ Value Freq K/I

(λi) (Ci) (Qi) (CiQi/2) (λ/Qi)
Item

Costume Jewelry 1900 12.00 398 2388.00 4.77 500

Novelty Gifts 2050 12.50 405 2531.25 5.06
Earrings 1285 4.80 517 1240.80 2.49
Children's Clothes 575 8.80 256 1126.40 2.25
Men's Jewelry 875 8.00 331 1324.00 2.64
Tee Shirts 1550 3.00 719 1078.50 2.16
Greeting Cards 3870 0.50 2782 695.50 1.39
Chocolate Cookies 7000 0.40 4183 836.60 1.67

Totals 11221.05 22.43

Volume Cost EOQ Value Freq K/I

Item (λi) (Ci) (Qi) (CiQi/2) (λ/Qi)

Costume Jewelry 1900 12.00 563 3378.00 3.37 1000

Novelty Gifts 2050 12.50 573 3581.25 3.58
Earrings 1285 4.80 732 1756.80 1.76
Children's Clothes 575 8.80 361 1588.40 1.59
Men's Jewelry 875 8.00 468 1872.00 1.87
Tee Shirts 1550 3.00 1017 1525.50 1.52
Greeting Cards 3870 0.50 3934 983.50 0.98
Chocolate Cookies 7000 0.40 5916 1183.20 1.18

Totals 15868.65 15.86

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Production and Operations Analysis, Fourth Edition

Hence, we have the following four points on the exchange curve: (50, 5014) (35, 7097)
(22, 11,221) and (16, 15,879). Using these points we would approximate the exchange
curve as:

15,000

$ value
10,000
of average
inventory
5,000

10 20 30 40 50 60
replenishments per year

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