Question
(a) A dairy wants to determine the quantity of butter it should produce to meet the demand. Past records have shown the following demand pattern:
Quantity required (kg) 15 20 25 30 35 40 50
Number of days demand occurred 6 14 20 80 40 30 10
The stock levels are restricted to the range of 15 to 50 kg and the butter left unsold at the end of the day must be disposed of due to
inadequate storing facilities. Butter costs Rs. 40 per kg and is sold at Rs. 50 per kg.
(1) Construct a conditional profits table.
(2) Determine the action alternative associated with the maximization of expected profit.
(3) Determine the Expected Value with Perfect Information (EVPI).
(b) Annual demand for an item is 3200 units. The item costs Rs. 6 per unit, and the annual inventory holding charge is 25% of the cost of the item. The order-processing cost is Rs. 150. Determine
(1) The economic order quantity
(2) The number of orders per year
(3) The time between two consecutive orders
(4) The minimum total expected annual cost.