le Window Help IH6 (1) Qv Search in Document ne Insert Design Layout References

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le Window Help IH6 (1) Qv Search in Document ne Insert Design Layout References Mailings Review View Times New Ro.. 12 A A Aa B 1 u' abe X2 X2 A A, Paragraph Styles Problem 1: Macys orders coats from its supplier. The production cost for the supplier is 20 dollars. Currently, Macys orders from the supplier at 50 dollar per coat. Macys sells the coats to end- customers at $100 per coat. Assume the salvage value of the coat is zero; i.e., if Macys cannot sell the coats, the leftover inventory has zero value. The potential end-customer demand follows the table titow, depending on the weather Weather Possible demand D Probability Pr(D) Very Warm 150 Warm Cold Very cold 25% 25% 30% 20% 350 450 a) What are the unit underage cost (Cu) and the overage cost (Co) for Macys? b) How many coats should Macys order? c) Suppose Macys and the supplier belong to the same company (a centralized firm). What are the unit underage cost (Cu) and the overage cost (Co) for the whole company? How many coats should the company produce? Disregard c). Suppose Macys now offers a revenue sharing contract to the supplier. Macys pays 10 dollars per coat to the supplier up front (which is much lower than original purchasing cost 50 dollars). However, for each coat Macys sells to the end-consumers, Macys needs to give 50 dollars (of that $100) to the supplier. What are the unit underage cost (Cu) and the overage cost (Co) for Macys? How many coats should Macys order from the supplier? d) Problem 2: Read the Euyag Glass case. Answer the following questions: a. Based on Exhibit 16, what is the hourly labor cost of Tianjin plant in US dollar (consider only the work hours)?

Explanation / Answer

(a)

Cu = underage cost = Selling price - cost of purchase = $100 - $50 = $50
Co = overage cost = Cost - salvage value = $50 - $0 = $50

(b)

Critical ratio = Cu / (Co+Cu) = 50/(50+50) = 0.50

For optimal ordering policy, the in-stock probability should be equal to the criitcal ratio.

So, the optimal ordering policy should be 250 units

(c)

Cu = underage cost = Selling price - cost of production = $100 - $20 = $80
Co = overage cost = Production cost - salvage value = $20 - $0 = $20

Critical ratio = Cu / (Co+Cu) = 80/(20+80) = 0.80

So, the optimal production quantity should be 350 units.

(d)

Cu = underage cost = Effective selling price - cost of purchase = ($100 - $50) - $10 = $40
Co = overage cost = cost of purchase - salvage value = $10 - $0 = $10

Critical ratio = Cu / (Co+Cu) = 40/(40+10) = 0.80

So, the optimal ordering policy should be 350 units

Demand Prob Cumulative
Pob 150 0.25 0.25 250 0.25 0.50 350 0.30 0.80 450 0.20 1.00

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