School of Industrial Engineering & Management (IEM) Inventory Management

International University, VNU-HCM Instructor: Dr. Nguyen Van Hop

Name: Huỳnh Quốc Khánh

ID: IELSIU19029

HOMEWORK CHAPTER 6
1. Problem 1:
We have:
𝑝 = $210/𝑐𝑜𝑎𝑡
𝑣 = $150/𝑐𝑜𝑎𝑡
𝑛 = 100 𝑐𝑜𝑎𝑡𝑠
𝐵 = $150 ∗ 0.15 = $22.5/𝑐𝑜𝑎𝑡
𝑔 = $150/𝑐𝑜𝑎𝑡
a. Uniform distribution: 𝑈(75; 125)
Order quantity:
𝑝−𝑣+𝐵 $210−$150+$22.5
𝑝𝑟 (𝑋 < 𝑄 ∗ ) = 𝑝−𝑔+𝐵 = $210−$150+$22.5 = 1 → 𝑄 ∗ = 125 𝑐𝑜𝑎𝑡𝑠

Expected revenue:
𝑄∗
𝐸[𝑃(𝑄 ∗ )] = −𝐵𝑥̅ + (𝑝 − 𝑔 + 𝐵) ∫0 𝑥0 𝑓𝑥 (𝑥0 )𝑑𝑥0
75 125 𝑥0
= −$22.5 ∗ 100 + ($210 − $150 + $22.5)(∫0 0𝑑𝑥0 + ∫75 𝑑𝑥0 ) = $6,000
125−75

b. 𝑁(110,152 )
Order quantity:
𝑣−𝑔 $150 − $150
𝑃𝑢≥ (𝑘) = = = 0 → 𝑃𝑢< (𝑘) = 1 − 0 = 1 → 𝑘 = 4
𝑝 − 𝑔 + 𝐵 $210 − $150 + $22.5
𝑄 ∗ = 𝑥̅ + 𝑘𝜎𝑥 = 110 + 4 ∗ 15 = 170 𝑐𝑜𝑎𝑡𝑠

𝑄 − 𝑥̅
𝐸[𝑃(𝑄)] = (𝑝 − 𝑔)𝑥̅ − (𝑣 − 𝑔)𝑄 − (𝑝 − 𝑔 + 𝐵)𝜎𝑥 𝐺𝑢 ( )
𝜎𝑥
= ($210 − $150) ∗ $110 − ($150 − $150) ∗ 170 − ($210 − $150 + $22.5) ∗ 15
∗ 0.000007145
= $6,599.9646
The inside information concerning the tax worth to him: $6,599.9646 − $6,000 = $599.9646

2. Problem 2:
School of Industrial Engineering & Management (IEM) Inventory Management
International University, VNU-HCM Instructor: Dr. Nguyen Van Hop

We have:
𝑝 = $100 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
𝑣 = $60 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
𝑔 = $51 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

a. Expected Demand
𝐸(𝑥) = ∑𝑎𝑙𝑙 𝑥 𝑥𝑃(𝑥) = 540 𝑢𝑛𝑖𝑡𝑠
b. Standard deviation

𝜎 = √∑𝑎𝑙𝑙 𝑥(𝑥 − 𝜇)2 𝑃(𝑥) = 135.6466 ≈ 136 𝑢𝑛𝑖𝑡𝑠

c. Quantity to maximize profit
𝑐𝑢 𝑝−𝑣+𝐵 $100−$60
𝐺(𝑄 ∗ ) = 𝑐 = 𝑝−𝑔+𝐵 = $100−$51 = 0.82
𝑢 +𝑐𝑜

The minimal order quantity satisfies G(Q*):

𝑄 ∗ = min{𝑄: 𝑃𝑥≤ (𝑄) ≥ 0.82} = 700 𝑢𝑛𝑖𝑡𝑠.
d. Expected profit from the policy in part c:

Demand G(x) Sale Units Over Unit Short

Q=700 Min(Q,D) Max(Q-D,0) Max(D-Q,0)

300 0.1 300 400 0

400 0.1 400 300 0

500 0.4 500 200 0

600 0.2 600 100 0

700 0.1 700 0 0

800 0.1 700 0 100

Expected Value: 530 170 10

𝐸[𝑃(𝑄 ∗ )] = 𝑝𝐸[𝑟𝑒𝑣𝑒𝑛𝑢𝑒] − 𝑐𝑜 𝐸[𝑢𝑛𝑖𝑡𝑠 𝑜𝑣𝑒𝑟] − 𝑐𝑠 𝐸[𝑢𝑛𝑖𝑡𝑠 𝑠ℎ𝑜𝑟𝑡]

= $100 ∗ 𝐸[𝑟𝑒𝑣𝑒𝑛𝑢𝑒] − 9 ∗ 𝐸[𝑢𝑛𝑖𝑡𝑠 𝑜𝑣𝑒𝑟] − $40 ∗ 𝐸[𝑢𝑛𝑖𝑡𝑠 𝑠ℎ𝑜𝑟𝑡]
= $100 ∗ 530 − $9 ∗ 170 − $40 ∗ 10 = $51,070
e. Normal distribution: 𝑁(540,1362 )
 School of Industrial Engineering & Management (IEM) Inventory Management
International University, VNU-HCM Instructor: Dr. Nguyen Van Hop

𝑣−𝑔 $60−$51
𝑃𝑢≥ (𝑘) = 𝑝−𝑔+𝐵 = $100−$51 = 0.1837 → 𝑘 = 0.9015
𝑄 ∗ = 𝑥̅ + 𝑘𝜎𝑥 = 540 + 0.9015 ∗ 136 = 662.6 ≈ 700 𝑐𝑜𝑎𝑡𝑠
f. The cost penalty for using a simpler normal distribution:
𝑃𝑒𝑛𝑎𝑙𝑡𝑦 = (700 − 662.6) ∗ $40 = $1,496
3. Problem 3:
a. We have:

Try different M value:

 School of Industrial Engineering & Management (IEM) Inventory Management
International University, VNU-HCM Instructor: Dr. Nguyen Van Hop

The order quantities for 3 items are Q*(SB-1, SB-2, SB-3) = (499, 211, 179).
b. Increasing the budget to $75,000:

The order quantities for 3 items are Q*(SB-1, SB-2, SB-3) = (519, 244, 187).