A manager is going to purchase new processing equipment and must decide on the number of spare parts to order with the new equipment. The spares cost $ 200 each, and any unused spares will have an expected salvage value of $ 50 each. The probability of usage can be described by this distribution:

If a part fails and a spare is not available, two days will be needed to obtain a replacement and install it. The cost for idle equipment is $ 500 per day. What quantity of spares should be ordered?
a. Use the ratio method.
b. Use the tabular method.

  • CreatedDecember 30, 2014
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