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Tutorial - Class Discussion - Inventory Questions

Tutorial_Class Discussion_Inventory Questions

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Tian Xiang
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8 views

Tutorial - Class Discussion - Inventory Questions

Tutorial_Class Discussion_Inventory Questions

Uploaded by

Tian Xiang
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Question 1

Muthu sells on the average 30 bicycle per week. The manager pays RM350 for a bicycle to the
manufacturer. The ordering cost is RM80 per order. The annual holding cost is estimated to be 20%
of the price of the bicycle. Determine the following:

Q = Number of pieces per order


Q* = Optimal number of pieces per order (EOQ)
D = Annual demand in units for the inventory item
S = Setup or ordering cost for each order
H = Holding or carrying cost per unit per year

(a) Economic order quantity (Q*)


(b) Optimal number of orders per year
(c) Total inventory cost
(d) Cycle time (or Expected Time Between Orders)
ANSWER:

(a) Economic order quantity (Q*) =


Q¿ =
√ 2∗(30∗52)∗80
0. 2∗350
=60
units.

(b) Optimal number of orders per year = D/Q* = 26 orders per year

(c) Total inventory cost

D Q
TC= S+ H
Q 2
30∗52 60
= (80 )+ ( 70 )
60 2
=RM 4180

(d) Cycle time T=250/26 = 9.615 = 10 days between orders

Expected time Number of working days per year


between orders = T =
Expected number of orders
Question 2

The Super Discount store (open 24 hours a day, every day) sells packs of paper towels, at the
rate of approximately 420 packs per week. Because the towels are so bulky, the annual cost
to carry them in inventory is estimated at $0.50. The cost to place an order for more is $20
and it takes four days for an order to arrive.
i) Find the optimal order quantity.
ii) What is the reorder point?
iii) How often should an order be placed?

ANSWER:

c) i) Q* = sqrt[ (2 * 420 * 52 * 20) / 0.5] = 1322


ii) r = (60)(4) = 240
iii) T = 365(1322)/21840 = 22 days

Question 3

Domino Specialty Foods can produce its famous meat pies at a rate of 1650 cases of 48 pies each per
day. The firm distributes the pies to regional stores and restaurants at a steady rate of 250 cases per
day. The cost of setup, cleanup, idle time in transition from other products to pies, etc., is $320.
Annual holding costs are $11.50 per case. Assume 250 days per year.

a) What is the optimum production run (batch size)?

b) What is the number of production runs per year?

c) Maximum inventory.

d) What is the total setup and carrying costs per year ?

e) Give two assumptions of the EOQ model

ANSWERS

(i) Q*p = = = 2024.7 or 2025 cases.


(ii) There will be 62,500 / 2024.7 = 30.87 runs per year.

(iii) The maximum inventory level is Q = 2024.7 = 1717.9 units.

(iv) Total inventory management costs are

TC = ($320) + ($11.50) = $9878 + $9878 + $19,756.


(v) constant demand , constant lead time.

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