Happy Henry’s car dealer sells an imported car called the EX123. Once everythree months, a shipment of the cars is made to Happy Henry’s. Emergencyshipments can be made between these three-month intervals to resupply the carswhen inventory falls short of demand. The emergency shipments require twoweeks, and buyers are willing to wait this long for the cars, but will generally goelsewhere before the next three-month shipment is due.From experience, it appears that the demand for the EX123 over a three-monthinterval is normally distributed with a mean of 60 and a variance of 36. The cost ofholding an EX123 for one year is $500. Emergency shipments cost $250 per carover and above normal shipping costs.a. How many cars should Happy Henry’s be purchasing every three months?b. Repeat the calculations, assuming that excess demands are back-ordered fromone three-month period to the next. Assume a loss-of-goodwill cost of $100 forcustomers having to wait until the next three-month period and a cost of $50 percustomer for bookkeeping expenses.c. Repeat the calculations, assuming that when Happy Henry’s is out of stock ofEX123s, the customer will purchase the car elsewhere. In this case, assume thatthe cars cost Henry an average of $10,000 and sell for an average of $13,500.Ignore loss-of-goodwill costs for this calculation

Practical Management Science
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ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
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Happy Henry’s car dealer sells an imported car called the EX123. Once every
three months, a shipment of the cars is made to Happy Henry’s. Emergency
shipments can be made between these three-month intervals to resupply the cars
when inventory falls short of demand. The emergency shipments require two
weeks, and buyers are willing to wait this long for the cars, but will generally go
elsewhere before the next three-month shipment is due.
From experience, it appears that the demand for the EX123 over a three-month
interval is normally distributed with a mean of 60 and a variance of 36. The cost of
holding an EX123 for one year is $500. Emergency shipments cost $250 per car
over and above normal shipping costs.
a. How many cars should Happy Henry’s be purchasing every three months?
b. Repeat the calculations, assuming that excess demands are back-ordered from
one three-month period to the next. Assume a loss-of-goodwill cost of $100 for
customers having to wait until the next three-month period and a cost of $50 per
customer for bookkeeping expenses.
c. Repeat the calculations, assuming that when Happy Henry’s is out of stock of
EX123s, the customer will purchase the car elsewhere. In this case, assume that
the cars cost Henry an average of $10,000 and sell for an average of $13,500.
Ignore loss-of-goodwill costs for this calculation

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