CALCULATING THE QUANTITY PENALTY Quantity Penalty: Assumes that half the penalty (0.5B) is paid when a quantity violatio

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Calculating The Quantity Penalty Quantity Penalty Assumes That Half The Penalty 0 5b Is Paid When A Quantity Violatio 1 (71.41 KiB) Viewed 60 times

CALCULATING THE QUANTITY PENALTY Quantity Penalty: Assumes that half the penalty (0.5B) is paid when a quantity violation occurs. ● Probability of a Quantity Violation = Prob[Demand<QMin]. Since we assume a normal demand distribution. Then: |emin - UDT] ODT Quantity Penalty = 0.58 P[Demand < Qmin] Example: uD,= 1700 and oD 325. Contract parameters are Qmin= 1450 and = $34000. - P[Demand < Qmin] = Prob[Demand<QMin] = 0.2209 or 22.09%