Assignment:
The daily demand for a spare engine part is a random variable with a distribution, based on past experience, given by
|
Number of Demands per Day
|
Probability
|
|
0
|
.21
|
|
1
|
.38
|
|
2
|
.19
|
|
3
|
.14
|
|
4
|
.08
|
The part is expected to be obsolete after 400 days. Assume that demands from one day to the next are independent. The parts cost $1,500 each when acquired in advance of the 400-day period and $5,000 each when purchased on an emergency basis during the 400-day period. Holding costs for unused parts are based on a daily interest rate of 0.08 percent. Unused parts can be scrapped for 10 percent of their purchase price. How many parts should be acquired in advance of the 400-day period?
Provide complete and step by step solution for the question and show calculations and use formulas.