Midterm review answers

1. b
2. c
3. b
4. d
1 month = 4 weeks

R
! = L * AVG + z * STD * L = 4 * 320 + 1.88 * 28 * 4 = 1385
5. d
6. a
7. a
Inbound cost per order = unit inbound cost * order quantity
r = 2 weeks = 0.5 months
Q
! = r * AVG = 0.5 * 1335 = 667.5
Inbound cost = 12* 667.5 = $8010.
8. b
There are two ways to calculate monthly inbound transportation cost:
a. Monthly inbound cost = inbound cost per order * orders per month (N)
AVG 1335
N
! = = =2
Q 667.5
Monthly inbound cost = 8010 * 2= $16020.
b. Monthly inbound cost = unit inbound cost * monthly demand = 12*1335 = $16020
9. b
10. d
11. c
When retailer orders 7,000, whether the market demand ends up at 7,000 or 9,000, the retailer's
profit is the same, and calculated as:
! = ( p − w) * Q − F = (10 − 5) * 7,000 − 20,000 = $15,000
π
where p is the retailing price, w as the wholesales price, Q as the order quantity, F as the order
fixed costs.
12. b
When retailer orders 7,000, whether the market demand ends up at 7,000 or 9,000, the retailer's
profit is the same, and calculated as:
π
! = ( p − w) * Q − F − s * p * Q = (10 − 3.5) * 7,000 − 20,000 − 12% * 10 * 7,000 = $17,100
where s is the revenue-share

(w-c)*Q+min(Q, D) * p *s= (3.5-1)* 9000 + 7000 * 10* 12%= $30,900

13. No correct answers (please omit this question)

 Demand Probability Profit

7000 65% (w-c)*Q+min(Q, D) * p *s= (3.5-1)* 9000 + 7000 * 10* 12%= $30,900

9000 35% (w-c)*Q+min(Q, D) * p *s= (3.5-1)* 9000 + 9000 * 10* 12%= $33,300
The supplier's expected profit = 30,900*65% + 33,300*35% = $31,740
14. Possible uncertainty sources:
- Bad peach crop --> lacking supply;
- Good peach crop --> oversupply;
- Demand forecast uncertainty;
- Fresh peach preservation uncertainty: Insufficient/wrong preservation conditions lead to higher
damage rate of fresh peach (raw materials for canned peaches);
- Expiration date;