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Case1. If

1. L. Pea is a mail-order company that needs to determine how many employees to hire during its busy Christmas season. 2. Orders received each day follow a normal distribution with a mean of 2,000 and standard deviation of 500. Employees can process 50 orders per day over 8 working hours. 3. The optimal number of employees minimizes total labor costs, including regular pay of $10/hour and overtime of $15/hour if daily orders exceed employee capacity.

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101 views

Case1. If

1. L. Pea is a mail-order company that needs to determine how many employees to hire during its busy Christmas season. 2. Orders received each day follow a normal distribution with a mean of 2,000 and standard deviation of 500. Employees can process 50 orders per day over 8 working hours. 3. The optimal number of employees minimizes total labor costs, including regular pay of $10/hour and overtime of $15/hour if daily orders exceed employee capacity.

Uploaded by

herrajohn
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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1. L. Pea is a well-known mail-order company.

During the Christmas rush (from November 1 to


December 15), the number of orders that 1. L. Pea must fill each day (five days per week) is normally
distributed, with a mean of 2,000 and a standard deviation of 500. 1. L. Pea must determine how
many employees should be working during the Christmas rush. Each employee works five days a
week, eight hours a day, can process 50 orders per day, and is paid $10 per hour. If the full-time work
force cannot handle the day's orders during regular hours, some employees will have to work
overtime. Each employee is paid $15 per hour for overtime work. For example, if 300 orders are
received in a day and there are four employees, then 300 - 4(50) = 100 orders must be processed by
employees who are working overtime. Since each employee can fill = 6.25 orders per hour, I. L. Pea
would need to pay workers 2 = 16 hours of overtime for that day. To minimize its expected labor
costs, how many full-time employees should I. L. Pea employ during the Christmas rush?

Let,

Let,

Both d and h are values of random variables.

Now determine the smallest value of q for which . To calculate

, consider two possibilities:


Case1. If  then in this case, ordering  units instead of q units which cause to be

overstocked by one more unit. The probability that Case1 will occur is simply ,

where D is the continuous random variable having density function .


Case2. If  then in this case, ordering units instead of q units enables to be short one

less unit. The probability that Case2 will occur is .


Here for calculating actual number of hours of employee labor required during a day we are
using h variable and given that all employees are working 8 hours a day.
So for,
 …… (1)
Total cost is .
For,
 …… (2)

Total cost is .
Rewrite equation (1) and (2) as,
For,

Total cost is .

Hence total cost for case is,

 …… (3)
Compare equation (3) with equation,
Here is the marginal profit from selling a stocked unit.
Thus get the value .
For,

Total cost is

Hence total cost for case is,

 …… (4)
Compare equation (4) with equation,

Here is the per-unit cost under stocked.


Thus get the value .
Now we have a news vendor problem with the random demand following the random variable
where H. So each worker can handle  orders per hour it must be true that
. Then is equal to
In terms of H and D we may state that . Hence is normally distributed with,

And standard deviation is,

Now we know that the optimal number of employees must satisfy the equation,

Hence,

We have normal distribution formula as,

Here is the optimal order quantity, the mean is which is equal to 40 and the standard
deviation is which is equal to 10.

After standardizing   obtain the calculation given below,


 …… (5)

Look at the z table to find the z corresponding to . The screenshot of z table is given


below.
Z 0.00 0.01 0.02 0.03

–0.4 0.3446 0.3409 0.3372 0.3336

–0.3 0.3821 0.3783 0.3745 0.3707

–0.2 0.4207 0.4168 0.4129 0.4090

–0.1 0.4602 0.4562 0.4522 0.4483

–0.0 0.5000 0.4960 0.4920 0.4880


Since the value 0.3336 is lying on -0.4 with level of significance 0.03.
Hence,

Now recall equation (5),

It can be written as,

Therefore 35 or 36 full time employees should be working during the Christmas season.

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