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 $174 each, and any unused spares will have an expected salvage value of $44 each. The probability of usage can be described by this distribution:
Number 0 1 2 3
Probability .10 .50 .25 .15
If a part fails and a spare is not available, 2 days will be needed to obtain a replacement and install it. The cost for idle equipment is $590 per day. What quantity of spares should be ordered?
a. Use the ratio method. (Round your answer to 2 decimal places.)
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