Chapter 13 SB

If an organization orders more than the quantity that maximizes expected profit the in-stock probability will be ________ the critical ratio.

greater than

Expected sales = Q - Expected

inventory

If the critical ratio is .6, there is a 60% chance that demand is _______ the optimal order quantity Q*:

less than or equal to

When placing a single order in the face of uncertain demand organizations have to balance having "too much" against having "too

little

When z = 2, the optimal order quantity should be two_____ ______ above the mean of the actual demand distribution.

standard deviations

Expected sales measures those sold at _________ price.

the regular

What is the process for calculating expected inventory?

1. Convert order quantity Q to a z value 2. Look up expected inventory, given that z value, for a standard normal distribution 3. Convert that expected inventory to the expected inventory for the actual demand distribution

Order the steps in the process for finding the order quantity that maximizes expected profit.

1. Evaluate the critical ratio 2. Find the Z value that corresponds to the critical ratio 3. Use the Z value to calculate the optimal order quantity for the true demand distribution

Suppose you are using a statistical table to determine Q; and the critical ratio is .612. If F(300) = .598 and F(350) = .615 then the round-up rule states that you should choose Q; =

350

Salvage value is applied to units during which period?

After the selling season

True or false: The newsvendor model is appropriate for a setting where a customer will wait for the next shipment to show up in cases where a store runs out of inventory. True false question.

False: The newsvendor model is for settings wherein if inventory is not available to make a sale that sale is lost.

True or false: Calculating the critical ratio is the final step in determining the optimal order quantity.

False: to determine the correct Z value for the optimal order quantity, the critical ratio must be calculated. Thus, finding the critical ratio is the first step.

As the order quantity decreases which performance metric that impacts expected profit decreases?

expected sales

The expected number of units sold during the season at regular price is called expected

expected sales

If the standard deviation of the demand distribution increases--and everything else remains the same--then the expected inventory ______.

increases

Expected _________ must be salvaged

inventory

The expected number of units not sold at the end of the season is called expected

inventory

The larger the critical ratio the _______ the order quantity that maximizes expected profit.

larger

The round-up rule states that when looking up a probability in a statistical table and the probability falls between two entries you should choose the entry with the ______ probability.

larger

At the end of the season, every unit that is ordered is either _____ by the seller or left in _____

sold, inventory

To derive the optimal order quantity for the true demand distribution from the optimal order quantity for the standard normal distribution, multiply the ________ of the true demand distribution by the optimal order quantity for the standard normal distribution.

standard deviation

Match the axis with the quantity you are looking for in the graph method.

y-axis ---> critical ratio x-axis --->Q*