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Assignment 3 Problems - Chapter 13: Submitted To: Md. Hasan Maksud Chowdhury

This document contains the solutions to 30 problems from a Production-Operations Management course. Key details include: - Problem 2 involves classifying inventory items into A, B and C categories based on usage, costs and classification percentages. - Problem 4 calculates economic order quantity and compares total inventory costs using EOQ versus a rounded order size. - Problem 30 calculates a negative safety stock implying inventory levels may need reducing to match a 98% service level goal and 2% stockout risk.

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Ahmed Afridi
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68 views

Assignment 3 Problems - Chapter 13: Submitted To: Md. Hasan Maksud Chowdhury

This document contains the solutions to 30 problems from a Production-Operations Management course. Key details include: - Problem 2 involves classifying inventory items into A, B and C categories based on usage, costs and classification percentages. - Problem 4 calculates economic order quantity and compares total inventory costs using EOQ versus a rounded order size. - Problem 30 calculates a negative safety stock implying inventory levels may need reducing to match a 98% service level goal and 2% stockout risk.

Uploaded by

Ahmed Afridi
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Assignment 3

Problems - Chapter 13

Submitted To: Md. Hasan Maksud Chowdhury

Assistant Professor, BRAC University

Date of Submission: 30th August,2020

Submitted By: Maisha Quadir Maliha

Course: Production-Operations Management

Course ID: MSC301

ID: 17104149

Section: 2
Prob.2

a) After arranging the list in descending order we therefore carry out the A-B-C
classification quite smoothly.

Item Unit Usage Dollar % total Cumulativ Classification


Cost Amount Amount e
% total
amount
F95 30 800 24000 25.5 25.5 A
Z45 80 200 16000 17 42.5 A
K35 25 600 15000 15.9 58.4 A
P05 16 500 8000 8.5 66.9 A
F14 20 300 6000 6.4 73.3 A
D45 10 550 5500 5.8 79.1 A
K36 36 150 5400 5.7 84.9 B
D57 40 120 4800 5.1 90 B
K34 10 200 2000 2.1 92.1 B
D52 15 110 1650 1.8 93.9 C
M20 20 80 1600 1.7 95.6 C
F99 20 60 1200 1.3 96.8 C
N08 30 40 1200 1.3 98.1 C
D48 12 90 1080 1.1 99.3 C
M10 16 25 400 0.4 99.7 C
P09 10 30 300 0.3 100 C
⅀=94130

b) How the manager could use this information:


-Figuring out the demands for different products under each category
-Stocks can be increased with the demand
-managers can negotiate with the suppliers to push forward the “A” category
products that have the potential to bring in more revenue to the company.
c) Even though the unit cost for P05 is negligible, the demand is pretty high.
By using the demand-pull theory, if the unit cost rose up higher, the revenue for
this category of product would increase. So, yes, it can be put under the A
category.

Prob 4

Demand, D = 40*260
=10400
Carrying cost, H= $30
Ordering Cost, S = $60
a. EOQ = Sq.root (2*10400*60/30) = 203.96 or 204
b. Total Cost = (10400*60)/204 + (204*30)/2 = 6118.82
c. Without rounding the value of q = 203.96
Now,
Total Ordering Cost = (10400*60)/203.96 = 3059.42
Total Holding Cost = Hq/2= (30*203.96)/2 = 3059.4
Without rounding up the ordering cost and holding cost are same at EOQ.
d. q = 200 boxes
Total inventory Cost = (10400*6)/200 + (30*200)/2
= 6120
If the manager continues with the order size of 200 boxes, the inventory cost
increases
by $(6120 -6118.82) = $1.18
So, the manager should use the optimal order size instead of 200 boxes.
Prob 6

Actual Demand,D = (800*12) crates


= 9600
Holding Cost, H=35% of 10
= $3.5
Ordering cost S = $28
EOQ = Sq. Root (2*9600*28/3.5) = 391.91 or 392
Total Cost = DS/q + qH/2 = (9600*28)/392 + (392*3.2)/2
= 1371.71
In case of q = 800
Total Cost = (9600*28)/800 + (800*3.5)/2
= 1736
If the firm used EOQ, they could save $(1736 – 1371.71) = 364.29

Prob 7
a) 1st half of the year
Demand,D = 100 unit/month
Holding cost,H = $2/unit-month
Ordering cost,S = $55/Order
Q1 = Sq.Root(2DS/H)= Sq.Root (2 x 100 x 55/2) = 74 units
For 2nd half of the year,
D = 900/6 = 150 units/month
H = $2/Unit-month
S = $55/Order
Q2 = Sq.Root (2 x 150 x 55/2)
= 91 units
b) It is important to assume the demand because with the help of normal
distribution it will help minimizing the holding and carrying costs. Here, EOQ that
is Economic order Quantity has been used.
c) Total cost for 1st half of the year via EOQ,
Cost = 600 x 55/74 + 74 x 2 x6/2
= $889.95 (Q = 74)
For Q = 50 unit
Total Cost = 600 x 55/50 + 50 x 2 x 6/2 – (600/50) x 10
= $840
For Q = 100 units
Total Cost = 600 x 55/100 + 100 x 2 x 6/2 – (600/100) X 10
= $870
For the 1st half of the year, an order quantity of 50 units is recommended. Total
Cost = $840
Total cost for 2nd half of the year via EOQ
Cost = 900 x 55/91 + 91 x 2 x6/2
= $1089.96 (Q = 91)
For Q = 50 unit
Total Cost = 900 x 55/50 + 50 x 2 x 6/2 – (900/50) * 10
= $1110
For Q = 100 units
Total Cost = 900 x 55/100 + 100 x 2 x 6/2 – (900/100) * 10
= $1005
For Q = 150 units
Total Cost = 900 x 55/150 + 150 x 2 x 6/2 – (900/150) * 10
= $1170
For the 2nd half of the year, an order quantity of 100 units is recommended.
Total Cost =$1005, which is a minimum.

Prob 8

a. EOQ = Sq.Root (2 x 27000*60/0.18) = 4243


Cost = DS/q + Hq/2 = 27000*60/4243 + 0.18*4243/2
=$763.67
At q =4000, Cost = 27000*60/4000 + 0.18*4000/2
= $765
Monthly $(765 – 763.67)= $1.33
i.e. costs are $1.33 more for the current order size.
b. If 10-times ordering is there per month, then Q = 27000/10 = 2700,
Then inventory cost = 27000*60/2700 + 0.18*2700/2 = $843
As this cost is higher than cost of present ordering size or EOQ, so it is not
justifiable.
For every other day ordering size (Q) would be = 27000/15 = 1800
In order to justify this ordering cost be equal or less than the cost at EOQ,
763.67 = 27000 * S/1800 + 0.18*1800/2
Or, S = $40.11
c. Cost for order size Q = 27000 * 50/Q + 0.18 * Q/2 = 843
Q = (843 ±SQRT (8432 – 4 x 1350000*0.09))/2*0.09 = 843± 474/0.18
= 3476 ≤ 2050
Prob 20
Given,
LTD = 600 pound
Sigma LTD =52 pounds
Acceptable stockout risk during LT = 4%

a) At 4% risk of stockout, 1 - .04 = 0.96, closest probability is .9599. so, z = 1.75


Safety stock = z * sigma LTD = 1.75*52 = 91 units.
b) ROP = LTD + safety stock = 600+ 91 = 691 units
c) With no safety stock, stock out risk is 50%, z = 0

Prob 23

Given, ROP =625


d=85
Sigma d = 1.10
LT = 6 DAYS
We Know,
ROP = d*LT+z*Sq.Rt (sigma d ^2*LT+ sigmaLT^2*d^2)
625 = 85*6+z *Sq.Rt (o*6 + 1.10^2*85^2)
625 = 510+ z *93.5
z = 1.29
Probability = 90%
Probability of stock out = 10%

Prob 24
Given,
z = 96%
= 1.75 (from Z table)
Standard Deviation demand, sigma d = 2
Demand, d = 12
Lead time, LT = 4
Standard deviation, sigma LT = 4
a) We Know,
ROP = d*LT + z* SQRT (sigma d ^2*LT+ Sigma LT^2*d^2)

= 12*4 + 1.75 SQRT (2^2 *4 + 1^2*12^2)


= $70.135
b) The ROP model is not appropriate in seasonality because the fluctuation rate is
very high in seasonality.
Prob 26
a) Demand = (5*52) sheets = 260 sheets
Standard deviation, sigma d = 1.5
Ordering cost, S = 2
Holding Cost, H = $0.20
EOQ, q = Sq.Rt (2*D*S / H) = SQRT (2*260*2/ .20) = 72.111
b) Given,
Reorder Point, ROP = 12
Demand, d = 5
Sigma d = 0.5
Lead Time, LT = 2
We know,
ROP = d*LT +z *SQRT (sigma d^2*LT + sigma LT^2 *d^2)
12 = 5*2 + z *Sq.Rt (.5^2 * 2 + 0^2*5^2)
z = (12-10) / .707
z = 2.82
= 99.76% approximately
So, probability of stock out = (11-99.76) % =.24%

Prob 29

a) Lead Time Demand Mean, MLT d = 80


Standard Deviation, sigma LTD = 5
Annual Service level, z = 99% which is = 2.33
Safety Stock = z* Sigma LTD = 2.33 *6 = 13.98
b) With a Service Level = 99%
The Stock out risk = (100 -99)%

= 1%

Prob 30

Given,
Service level = 98%
z = 2.06 approximately
Standard Deviation demand, sigma d = 14
Standard deviation Lead Time, sigma LT = 0
Demand, d = 250
Lead Time = ½ week
We know,
safety stock = z * SqRt (Sigma d ^2 * LT + Sigma LT^2 * d^2)
= 2.06 *9.899 = 20.39
Negative safety stock implies that the might need to reduce their stock.
b) Given, SL = 98%
Stock out risk = (100 – 98 )%
=2%
So, probability = 0.02
Expected number of units short per order = probability of stock out *d
= .02*250
= 5 gallons
Unit Shortage/order = (5-5)

=0

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