Question: 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

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 $175 each, and any unused spares will have an expected salvage value of $45 each. The probability of usage can be described by this distribution:
\table[[Number,0,1,2,3],[Probability,.15,.40,.30,.15]]
Click here for the Excel Data File
If a part fails and a spare is not available, 2days will be needed to obtain a replacement and install it. The cost for idle equipment is $600 per day. What quantity of spares should be ordered?
a. Use the ratio method.
Note: Round the SL answer to 2 decimal places and the number of spares to the nearest whole number.
Service level is
so we need to order
Spares.
b. Use the tabular method and determine the expected cost for the number of spares recommended.
Note: Do not round intermediate calculations. Round your final answer to 2 decimals.
Expected cost is
 A manager is going to purchase new processing equipment and must

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related General Management Questions!