1. How does the Critical Ratio help us to find the profit-maximizing order quantity in a Single-Period (Newsvendor) ordering situation?

Select one:

a. We should choose the profit-maximizing order quantity, Q*, so that we dont have left over inventory (i.e., demand is Q or higher) with a probability that equals the Critical Ratio.

b. We should choose the profit-maximizing order quantity, Q*, so that we dont have lost sales (i.e., demand is Q or lower) with a probability that equals the Critical Ratio.

c. We should choose the profit-maximizing order quantity, Q*, so that it equals the critical ratio.

d. We should choose the profit-maximizing order quantity, Q*, so that the service level in the season (i.e., probability that all demand is satisfied) is equal to 1 minus the Critical Ratio

2.

You own a chain of stores in the south-east US which sell low-margin, novelty products. These products tend to sell for a certain period of time (a season) and then the demand disappears. The product needs to be ordered well ahead of the season, as they are low margin products, and you need to get the cheapest production option.

One of your new products for the summer season is an inflatable swim ring shaped like a donut. The swim donut has a demand that is normally distributed with an expected mean demand for the season of 400 and a standard deviation of 75.

The swim donut sells for $16, the cost of the swim donut is $9, and the salvage is $3.

For the following questions, please use the Normal Tables with the z value given to two decimal places and the round up rule (pick the z value to give you the larger order quantity).

How many swim donuts should you order before the season in order to maximize your profit?

Select one:

a. 392.5

b. 349.0

c. 440.0

d. 407.5

e. 475.2