Question

Blue Med-Center is providing the one-shot Wave vaccine to walk-in students. Each Wave vaccine costs Blue Med-Center $20, which is fully reimbursed by BCBS. In addition, Blue Med-Center wants to include the long-term benefit of having one more student vaccinated, estimated at $50, in its revenue calculation (i.e., add $50 per student vaccinated as part of the revenue for each vaccine that is used). Although Blue Med-Center has access to a large supply of frozen vaccines, this vaccine needs to be thawed for at least 12 hours before it can be administered. Once thawed, the vaccines will expire after 8 hours. Therefore, every night, Blue Med-Center needs to decide how many vaccines to thaw overnight to be used tomorrow.

After learning about your Operations and Supply Chain Management course, they have asked for your help in making this decision. Using relevant historical data, Blue-Med Center forecasts tomorrow’s demand to be 275 units. However, relevant historical A/F ratios have an overall average of 1.15 and overall standard deviation of 0.75.

Include two decimals for all answers except Q* (expected values do not have to be integers).

Using the historical A/F ratios and assuming a Normal distribution for the demand, what adjusted mean µD and standard deviation σD would you expect for tomorrow’s demand distribution?

For all remaining questions, assume that μD = 360 units and σD = 150 units.

What is the underage cost for the Wave vaccine?

Answer 1

The underage cost for the Wave vaccine is $70 per unit, which includes the actual cost of the vaccine and the estimated long-term benefit of vaccinating an additional student.

Step-by-step explanation:

To calculate the adjusted mean (μD) and standard deviation (σD) for tomorrow's demand distribution using the historical A/F ratios, we would first use the forecast demand of 275 units and the historical A/F ratio data, with an average of 1.15 and a standard deviation of 0.75. However, since we are instructed to assume that μD is 360 units and σD is 150 units for the remaining questions, we'll proceed with these values for further calculations.

The underage cost for the Wave vaccine refers to the cost associated with not having enough vaccines to meet demand. In this case, the underage cost includes the cost of the vaccine ($20) that Blue Med-Center could have sold and the estimated long-term benefit of having one more student vaccinated ($50). Therefore, the underage cost per unit is the sum of these two amounts:

Underage Cost = Cost of Vaccine + Long-term Benefit per Vaccine = $20 + $50 = $70