Question 1) Daily demand for the ice cream at Salt and Straw parlor is normally distributed with a mean of 200 quarts and a standard deviation of 100. The owner has the ice cream supplied by a wholesaler who charges $2.80 per quart. The wholesaler charges an $80 delivery charge independent of order size. The opportunity cost of capital to Salt and Straw estimated to be 25% per year. Assume 365 days in a year.

1. Whatistheoptimalordersizeandassociatedtotalinventorycostomittingmaterialcosts(holdingcostplusorderingcost)?
2. Supposethatdemandincreasesbyafactorof4(to800quartsperday),howdotheanswersprovidedinpartachange?Canyougenerali?
3. Assumethatittakes4daysforanordertobesupplied.Theownerswouldliketoensurea90%servicelevel.Howmuchsafetystockoficecreamshouldthestorehave?Whatisthecostofholdingthismuchsafetystock?
4. Providetwowaystoreducethecostofholdingsafetystockatagiven(fixed)servicelevel.

Question 2)

Suppose that you have been assigned to be the production manager of a new line of Mens blazers with a target delivery date within 3 weeks. Your market analysts claim that the market can easily bear the price of $120 per blazer. Production costs stand at $40, since it is sourced locally. They expect demand to be about 500 units with a standard deviation of 100. The demand follows a normal distribution. Any unsold blazers will be salvaged at discount stores for $20 per piece.

1. Whatistheoptimalorderquantityforthisfashionitem?
2. Intheeventofastockout,customerscanoccasionallybecomehostileandlookforasimilaritemfromacompetitor.Managementhasgiventhephenomenonaname,goodwillcostandassigneditavalueof$20,foreachtimeastockouthappens.Shouldthegoodwillcostbeincludedinthecostofover-stockingorunder-stocking?
3. Calculatethenewoptimalorderquantity.
4. Isthenewsvendorareasonablemodelforthefashionindustry?Whatassumptionswouldyoutest,andwhatdataelementsdoyouneedtouseitappropriately?Thinkthroughtheelementsofthemodel.