Question: On consecutive Saturdays, Jacqueline & Sara (J&S), the owners of a local newsstand purchase a number of copies of Tribune magazine. They pay $1 for each copy and sell each for $3.
J&S have kept a careful record of the demand for the journal to conclude that the distribution of demand is:
|
Demand
|
Probability
|
|
9
|
0.05
|
|
10
|
0.1
|
|
11
|
0.2
|
|
12
|
0.3
|
|
13
|
0.2
|
|
14
|
0.1
|
|
15
|
0.05
|
a) What are Co and Cu?
b) What is the optimal number to purchase to minimize the total expected understock and overstock costs?
c) What is the expected weekly shortage if 13 units are ordered?
d) What are expected sales and expected leftover inventory with an order of 13 units?
e) What are the expected total understock cost and the expected overstock cost with 13 units?