The purpose of this paper is to investigate the newsboy problem under more realistic circumstances. The lot size received is considered to have defective items, and 100% inspection is adopted to find out the defective items which incur inspection cost. The perfect and defective items left over the planning horizon have different salvage values. The objective of this article is to determine the optimal order quantity that should be purchased at the beginning of the period (assuming no initial inventory) to maximize the expected profit. In addition, the service level acts as a constraint to replace the component of shortage penalty cost in the objective function. We develop a simple algorithm procedure to find the optimal order quantity. A case problem is given to illustrate the application of these inventory models.
Tamsui Oxford Journal of Mathematical Sciences 14, pp.55-66