1.

Customers at Joe’s Office Supply Store demand an average of 6,000 desks per
year. Each time an order is placed, an ordering cost of $300 is incurred. The
annual holding cost for a single desk is 25% of the $200 cost of a desk. One
week elapses between the placement of an order and the arrival of the order.
In parts (a) – (c), assume that no shortages are allowed.
a. Each time an order is placed, how many desks should be ordered?
b. How many orders should be placed each year?
c. Determine the reorder point. If the lead time were five weeks, what
would be the reorder point? (52weeks = 1 year)
d. How would the answer in parts (a) and (b) change if shortages were
allowed and a cost of $80 is incurred if Joe’s is short one desk for one
year?
2. If cu is fixed, will an increase in co increase or decrease the optimal order
quantity?
3. If co is fixed, will an increase in cu increase or decrease the optimal order
quantity?
4. The ticket price for a New York-Indianapolis flight is $200. Each plane can
hold up to 100 passengers. Usually, some of the passengers who have
purchased tickets for a flight fail to show up (no-shows). To protect against
no-shows, the airline will try to sell more than 100 tickers for each flight.
Federal law states that any ticketed customer who is unable to board the plane
is entitled to compensation (say, $100). Past data indicate that the number of
no-shows for each New York-Indianapolis flight is normally distributed, with
a mean of 20 and a standard deviation of 5. To maximize expected revenues
less compensation costs, how many tickets should the airline sell for each
flight? Assume that any body who doesn’t use a ticket receives an $200
refund.
5. Each day, a news vendor must determine how many New York Herald
Wonderfuls to order. She pays 15 cents for each paper and sells each for 30
cents. Any leftover papers are a total loss. From past experience, she believes
that the number of papers she can sell each day is governed by the probability
distribution show in the table below. How many papers should she order each
day?
No. of Papers 50 70 90 110 130
Demanded
Probability 0.3 0.15 0.25 0.10 0.20

6. A hospital orders its blood from a regional blood bank. Each year, the hospital
uses an average of 1,040 pints of Type O blood. Each order placed with the
regional blood bank incurs a cost of $20. The lead time for each order is one
week. It costs the hospital $20 to hold 1 pint of blood in inventory for a year.
The per-pint stockout cost is estimated to be $50. Annual demand for Type O
blood is normally distributed, with standard deviation of 43.26 pints.
Determine the optimal order quantity, reorder point, and safety stock level.
Assume that 52 weeks = 1 year and that all demand is backlogged.