Newsvendor_slides

Question 1

overage cost

Answer 1

missed profit oppurtunity cost associated with ordering more than actual demand

Question 2

overage cost formula

Answer 2

cost-salvage value

Question 3

underage cost

Answer 3

missed profit opportunity cost associated with ordering less than actual demand

Question 4

underage cost formula

Answer 4

price-cost

Question 5

maximizing formula

Answer 5

set expected benefit=expect cost

Question 6

critical ratio

Answer 6

alpha=(underage cost)/(underage+overage cost)

Question 7

steps to compute ordering quantity

Answer 7

1) compute underage/overage costs
2) compute critical ratio
3) get z-score from critical ratio
4) plug in vales to optimal order quantity formula

Question 8

optimal order quantity formula

Answer 8

order q=expected demand+(critical value*std. dev of demand)

Question 9

expected sales formula

Answer 9

expected demand-expected lost sales

Question 10

expected leftover inventory formula

Answer 10

Q-expected sales

Question 11

expected profit formula

Answer 11

expected (P-C)expected sales-(cost-salvage)expected leftover inventory

Question 12

overbook explaination

Answer 12

1) usually alot of cancelations
2) sell more than capacity (+revenue)
3) pay people to forgo service (+costs)

Question 13

critical ratio for overbook formula

Answer 13

alpha=(price)/(price+bumping cost)