MAST 223

Introduction to Stochastic Methods of Operations Research

Instructor: Debaraj Sen
Due Date: February 15, 2024

Assignment#2
Q. 1) Father Dominic’s Pizza Parlor receives 30 calls per hour for delivery of pizza. It
costs Father Dominic’s $10 to send out a truck to deliver pizzas. It is estimated that each
minute a customer spends waiting for a pizza costs the pizza parlor 0.20$ in lost future
business. How often should Father Dominic’s send out a truck? What would be the
answer if a truck could only carry five pizzas?

Q. 2) Each year, a retail store sells 10,000 cases of soda. The company is trying to
determine how many cases should be ordered each time. It costs $5 to process each order,
and the cost of carrying a case of soda in inventory for one year is 20% of the purchase
price. The soda supplier offers store the schedule of quantity discounts as follows:

No. of Cases ordered Price per Case

q<200 $4.40
200≤q<400 $4.20
q≥400 $4.00

Each time an order is placed, how many cases of soda should the company order?

Q. 3) The production process at Father Dominic's Pizza can produce 400 pizza pies per
day; the firm operates 250 days per year. Father Dominic's has a cost of $180 per
production run and a holding cost of $5 per pizza-year. The pies are frozen immediately
after they are produced and stored in a refrigerated warehouse with a current maximum
capacity of 2,000 pies.

(a) Annual demand is 37,500 pies per year. What production run size should be used?
(b) What is the total annual cost incurred in meeting demand?
(c) How many days per year will the company be producing pizza pies?

Q. 4) Show that the optimal order quantity for the backlogged demand model is always at
least as large as the EOQ but that the maximum inventory level for the backlogged
demand model can’t exceed the EOQ.

Q. 5) A company can produce 100 home computers per day. The setup cost for a
production run is $ 1,000. The cost of holding a computer in inventory for one year is
$300. Customers demand 2,000 home computers per month (Assume that 1 month=30
days and 360 days=1 year). What is the optimal production run size? How many
production runs must be made each year?