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MSCI 432.001/633: Assignment # 3; MSCI 432.002: Assignment # 2

Q1. Discounting schemes.

a. Find the optimal ordering quantities for each of the items and the corresponding annual total cost.

[3 marks X3]

b. What is the primary difference between the ordering decisions made in a? Illustrate your answer

graphically. [2 marks]

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Q2. Limit on shelf life.

Simply find T

EOQ

=EOQ/ߣ and if T

EOQ

>SL then Q

SL

=SL*λ

Q3. Uncertain demand.

a. Assume that the firm has centralized all inventories in a single warehouse and that the probability

of stocking out in a cycle can still be no more than 5%. Ideally, how much average inventory can

the company now expect to hold, and at what cost? In this case, how long will a unit spend in the

warehouse before being sold? [5 marks]

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