I L,~•, ~cri .,_n th, ~ l lfffl till' c:dlh lrttt 'likt 11111hH«ur ~ n •~ ~ tor 1.

n •~ ~ tor 1.ht oprrall(ll'I in Wlllili of h-n l'ftill'Vf.tj

NJ' ~I lar a~ ~!!!41fL

• l 1nn;p1-.-ff1t ndti Mlti:~f!'!i 1' D lain III wnl

• l11y rat.I '1:25 Pit 1h m,· 11-ff fflPr.fVN

■ Ou1 af ·lhru., II 11gn up la, tJia Nn~EiL

4 emu:
• Maltrfa1 cinll il0G0 1111'- wNk
Co ltulotlon1:

I. T0101 Wt<Uv Lobo< Cott

Labor Cost = 3 employees " -10 bo nrs/ week >< 25 dollars/hour = 3 x -10 '< 25 = 30
2- T0101 Wuk Iv Cont

Total Cost = Labor Cost - 1\l aterial CO:Sts + Overhead Costs = 3000 + 1000 + 90I
3 Number ol Ltod1 s;..,_4 U'"
• Each ""'OIOVff 1dt •tlfln 3000 lt odo. to tho total lt ad:1 ,dt11tlflt d bt, 3 <"'l'loVfn I~
Total Leads = 3 " 3000 = 9000 lea ds/ week
• U ol thtH ltod, 1lgn "I>
Number o ( Sign-Ups = 0.04 "- 9000 = 360 sign-ups / week
l Total llw,._.. G.ftlrat,d

Tota.I Rev1muc = N1uubt11 of Sigu-U rlil :,;: Fee 1>e.r Sign-Up = 360 '< 7 = 2S20 d<Jl111n
5. Mwhlfactor Productlvltv 114111'

NfFP = Tollll Re ven ue

-
2520
::;:: 0 . 194 d ollMs o( reven ue per doll1u- o f input
T o tlll l11 p11l C08t 13000
A D.98 1.50

B. D.99 7.00

C D.97 U .. 00

0 0.95 ,.oo
E 097 S.00

Part ,rn: Ct1Tipt,t1, 'thl RIUab111tV of tl,• Tr01n1mlt't1r-

'1ih1 01w11r.a II rtUt0bih lt ~ ~ ~~flll'I• H1r l,1 t~,. prodh,c, (l,f ti-!, r1 II~b~ I jt j,1 c,f ,ol ~ I !!Id I'll 1~ • ~ 1 1 \ l l , ~11ct 1ae~

C9m~tJti ~1 M!ll"l ra,· lh.r. lra,tlfflit1P' IQ \!lilGll'l

Sub1t1t111Ung rtha !;llll'm iii'Oil111.:

Reliabil!iih.~
.. ofT·rnns:m.itter = 0.98 x D.99 ;,,: 0.97 ,: U.95 :-.: 1.97'

l•f■ D11lmlcibl! it:.

Reliability of T .n msm.i.tta- = 0.88

Part (Ii,,: L'n:erma■ R■ilh1"b ~ ll1y wi th Backup Untt■
ili_a it,llimf)an!II II wl 11 itnm to . ll[Jl'WIIU! 1M UII gf Uili. tr~n,ml Uu bi, ~ to 17 so ti.i ~ffljll'W-1. nlrl iibl liq_ w·., IINd lai dli !1rinlnt
wh Id, i : ~llil diciiMlid hit.ri ~up. ·11r!iitt gd'iltil 't o l'iim1,tff'IIH rtl llillU I111;111

• BK~!M:I la1l 1chllhy IHnl'Ulc rf II bi11d111p W'ilf II ai:lif•dl. tl!II r1 l~aiblllt1t1 ,R tl)f' l'Mt -C~lit ~..

"' l!'IC!l'lflllllt!II Cou Ana.hp.it.' W1 '-ll cr.ir,.11d1r l hfl inc ru:11t In ca1l p1r iin.11 for HCih CGIIIJKlftll\1 and tic- •I aUtctl
II'• l lob1I 11f.
1

thl lll'llllll ,1Ud iliqi1l or ihl!ffl cmnpaH n.~ 11111"1 Ill bo:ir:kup, umpan1 tM ,cul:I.
L.t•1 cII l·culot• w ~•Hffll•rw ~ I d1, r:ci1M1nati an
pr:cwidu IJM IH■t n lhin1I ~bj llftiUr IM 17.5 0 hulia~l ()l!Hlnl r,L

1 C';,c,m!',MIiit ;;.
 }(4 = ll - ( 1 - 0.98) 2 =1- D.000-l = OJ}QOO.
Co"fll. irtl'1'1;an'. U .S10

2 011'1!!1Jl(if\lJl.t 9:

H'8 = 1 - [ 1 - 0.99)' =1- 0.0001 = 0.!1999

C0:t~ fl'Wc• 1100

3. ~ t C

2
R'r = 1 - ( I - O,D7) =I- 'D,0009 = 0 .9091
Co:1111. ~ tl2..DO
1

,Ill ~11,: IO

Hn = l - {I - o ,9fi)i =1- 0 .002s ;=: o.9915

Cn11. 1,iicreu: fl.DO

5 C~ME:

R'E = 1 - t 1 - D.97)1 = l - D.0009 = U~9991

E111:1I u1:1t1~ng CGmbhmU,onS:
.t Option 1 l3m:lup for Cr:.iwf1111ot A
1
1 Con: l ltS 0 1

1
1 ....._ llw.liabd ii¥ K.,t = 0 .1006
.2 0 11il] l!l!!l 1: llnfiitij!i f,r:,, ~ftti D

11 Co■t: I~ Q,O

■ H:r. h liobd ibi Jl"D = 0.9975

.3 OpiU'l!!!I J: IL,6a"up for ~~ A M ~ D

1• 'T'iil! Qm Co.it" 131 5D • II, 0 0 •-17 501

I■ Comt,m,u Nilw luliab~litv,: R'A= D.9D9f ,J,,rnlo = 0 .9975

C.11,01.11 th■ kidnn l"if 17' !.I tiu ~ IIV!SI UliftJ r.i111ultl h■i h; ":,1,1 hti.rlni:n w"•h fnll'· lvrstfi ~1 , llllllif C -nt O 1ln 11
 • Ai'li'llilil,I C.0.11 F.u.uilOi!. Gini I ~

Cm( C) 1 = L, 600•.000 + lOQ

.. S.11 Ing Prk:t! p11r ltkilt:

P = SO doUHTS/ pnir

P·a rt 1.: I01111rm~n1 ·1h1· Bll"1ak-Ewn QuanUt11rBEP)

lli1 EnolrE-11n Cl1,111rrtl~ [BB:IJ ill .l!,■n tkt l6t1d mil ~11111M bit.Iii RYt flW.

• R.tY■,11,11 Fiunaion (Rt

R = P x Q = SOQ
.. BrHli-E~1n Pohii( 18fPI· lht BEP •OCCl\lll'li whin ii'o11I ltn,iw ltl,IC.lt T~11I Cott
1

R =C
S:111B:tl wti~ di. 111rv411 ,i:os.t mnd. ri■wlll!iil! fwri.ctl~

50Q = l , 600.• IDO + lOQ

Sc:thrtn; far q :

SOQ. - lOQ = l , OOO~O(M}

4.0Q = I .. 601, ODD

1,fiOO, 000
Q = - --10- - = 40. 000 r
'J'L"L1n.: of sboes
--
W■ ~1111 \111111a.li:u tlM! bril!:l~H pai11.t 1119 plotting tlia uczl ~ .lllliil, 11111111 r-■nuil' lll9,llil!ll.li: l.h11 q11.11:mti.l\j af IIMHJ P'l'CC!l!C~ At
Q ·= 40. 000. tnll to!m l nYtma llll"od hll-aE~ C'la'1M■ inl'D"lll'CL
1

• Totcil Cc■t HmciJcn: C = 1. 600. 000 + lOQ

• l 'ou:d A!t¥tiftllf FL!An len R = ,SOQ
P.a:rt 3 : Prof tt/l,DS I for a, P:l"IHLK:1:i an Ln-1 I of 2.D.OOO Palrs
l II c:r::ik11IC1CI' 'LM JJ1rof It Qf" t111:11i'.

! 1o1QI R11Y1ifL111 n 2 0,00 DPm,rt

Jl!ffl.UltiJ = 50 ~ 20. 000 = I • UU0 000 doUw-a

1
•

2_ l 11ud C1ut rn :2.D,O DD Pi::iin:

C2n.ooo = m. tiiOO. aoo --- 10 'Ii;, .20. ooo = m.,ooa. ooo + 200, ooo = l soo. oao dollars 1

:P ro6t/ Lass = R m ,i:m - CffiJJOO = l ~ 000. 000 - 11 SOD.1 000 =- SOD,, 000 do-Uar.s

Cctnc lru11Ian:

'i~t lhr'1i:ik~•11119lrri1 ~111"11!:!t G,0.000 ~ IJrJ QI ~ I . •*ii lftllJ 1!i'd•1 r;w- 1-0UI l1 l~ ,r.-d., C!'!d 1P1-!ii 1,!!l'Qductl;n btllillil!I thl1
I ■'■'■ I r11111lt1 I'mo l,01.L. 11111,ilt■ praduEbM ahcw ililu■ IDI Lruultl 111 a pnlit
 ....
~ . a......J lfilnlJ
IF1H1111r<1

20010"r'SUNo
... ) OaNaihtrw
s
Elplllld

1
1'11ditbn1J Pint
-Ull

30 0'0+:SIJNG so - l2 -so
1] :a:o 150
15 JJQ 10

• IP«Jbi:jbil I Utt far fl:l/tvr■ Dmwmf

• p( 2000 r Sl .No; l = O. I,
,■ p (:IDOO-rSl..No,} = D.3
'!!! p (4DOO+SLi."'io. } = 0.4
• p( SOW~ SLNo.) = D. 2

"li'11 MCl1ilm1,i u ~t.dO!II l1 G1COl'lll 1"'111Gt,111 appraach thDt foc1i11U11 Oft 111lni1111lzi l'lQI polnll,1:1 I IHHI lb!(! llltt:1.1 "I 'ihl ool1on Iii I lh
till h■:n. w onl-tiiHI lilSINlf'~CL

l Want--calil. IK:Ula"ia- f~ir um apt Ir,r;

• Da No'diing: min(5. 10, 13, 15,) =S

• bpatd mtn(7. - l 2', 3D; -io) = - l,2
• Add~t ltftllil IPIP,1 niiin{- 20. -'10; 50 70) 1, = - 20
.2.. IMaJci ffl ll'i l>Ki1icn.

I■ 0. h.i1&ln §f lilj! 'liiffl'IH:CJII ICl!l"ICIT~DI I• :5. 1t11mch CMl'D~ III• tlw! Ch, No,tlll~n; •o:ptian.

lfikKi fflOII Drci11~ l )o ~ll,trig1

lii"lt Meli imp c-,HP•on •11 ~ iai:,tl !l'lllll c aPJ)r·,ai:ic&I th!!l (!)NIU (!ill lli!Jilmliiti ng PQittn·ual GO! r,1, bw uimttlU'ID 'Pit ap,11,on w.J lh ffiil
lli,l,g11nl pou1~li11 Olliie--.

, Do Notliing. mu.( 5 1 l01131 15) =l5

• ~ PI.RX(T. - 12, 30.1 40) = 40
~ Ad1ht1i::no1 1Plimt:' n1u( - 20 1 - 10~50. 70) = 70i
2. !Mui 1'1'11:!a hc:ti11[,on

f,/lai:11m1 DH~,L..: Mm1ic111,cill Picini

c:. Mi:ud mum Expu: ltd Vci1Iut1 Crtlit.1" I an

Th.1 Mi:111~ EipK.t• Y11lut i::rl l•rij0r, ~11,.,1;1IY■!li eeiDtuli0tJng lhl upadt;d wcillH. hr u 11:h. ,opl.iorw u,d dimm■l"'I ilM In! 'lllith IN

lh.iigltwn ~ d Hlu.

l b:p1rtE!l Y111J111 Ct1lul111 Is far [1111:h Option:

EV00 &.l..hln.:l: = (0.1 ,- 5 ) + (0..3 ,:: IO) + ~0.4 .l': 13) + {0.2 x 15)

EVDo N□thmc = 0 .5 + 3. + 5 .2 ,- 3 = 11. 7 JW.lli.on dollars

EVup:imd. = (O.l :-t 7) + (0.3 l'< - ll) + {i0.4 x 30) .- (0.2 ,.. -40)

EYE:li:prw~ = 0 .7 - 3~6 + l2 , 8 = 1 i ..1 millian dollars.

EV_,\rlml.imml.Phml = (0.] x -20) - (0~3 ;,,: -10) + (0.4 x 50) + (0..2 x 70)

EVAmiHlmml Pliml =-2- 3 + :20 - 14 = :29 million dollars

• ik■ high■n uprrt11!11to I 111 ~111 2 9 l'lli I I i-111n e l IIB"L wkidi. ~ • ti, d,1 ~llldi tifanol Plmrit ,o,1tim.

IMuinmm. ~ V.ola 011ri1IJ011: lldd1t.u111::i l Pia11l

 ,: t Moi;mw,,, & ~ V11l1i1! De:i11ica

"' Thi "11,gh:rt L-,■Dllif talw i:■ 2.9 mlmlffl ~w:illL'lrt. 't.lMd, ·lil;ll"Tl!llpl:l!llill m tn■ ~ -Ii~ Ptam i:i,-lfllll'li,.

~11 !PIL!'!Wffi f•t«ud Viti a lhd 111' - .Addi mliiU!I ~·.1ar1t

Summilry:
• Ma:11Lr1tl111i C1
r••,1rl(!ft I);. tl;r1N'"f
• Mu~l'IW Cri·• Bil(III.' l_~it laml P'l111111

• Mut l'l'Wffl ~ ,t11lii11 Cri"IB'im A&IL1t,aM.I P,hmt.

b cycle ,~~ time ava_llatl,le/uF'I•~ required~ SAJ20:
27
ffiJl \utM

c:... mn1 mum numbe.- of WO li mrl ons ~ ~um of ta~lk

hfl"Je5J 11:yde
i
lltfnt;;: 7"05/27= 2.61 = l wor t. stal lan;

d Numbe,- af ·m llow ing ta'Sb ts ·lhe bm way IC ba1am::t- the

1

linie- lhefe ~rnt e the LaSk li111e- can be lhM ~ to break UM

e..

i\ a ril: "5.lat•oo
1
Ta!ilcs a,1agn.M

l A,5, El

~ C,E
-

~
F~H,I

t util ~o rr- sum of ·tag_ ntnes/ cyclo t,~ • num of wor li

stilt ions ; 7.051(2.7• JJ~ 87 ON,
• 1[2:, l. ,. 4, ODD• 1600 A :i'JSIJ • , 61)0 ,. :HiOCI • ,4,400 ti11_2!Stl

10 (2. !, .. 'II} BOD+ USD • ::!OGl:I • 1l~t! "' 6400 + +me 17'll!l!CI

1, [2. .. '· 3} 56'00 al\ 1AM • »~ID -.1,- 1 &O(J ,i. JMIO ~ 1e,.aso
1111,(0flJ

n ti •, J~ n '56.0G • 2CMXI ,., :2 :l! !Sa -+ 1 l OO + &«llH, :Z0.200

275l!ll

1l (3. 'I . Z 4) BDO + 22.SO + 7211Cl • , ioa iii ]100 1 l 300 1B,.'350

1-• C3. 1.~. 2) IQD • 215C ·•721llJ +· f61JIJ + moc • !3M 17tl5'1

1S (J. 2. i. '~ 8001., 1600 ,. "27!tCI • ~ .-iCHJ -1- :36illiCI -1- .H:Cl(] 'I S,;J5CI

111 (I,. la" ,, 800 + .27:5!0 * 17MI • ~ "1lDO "' 1400-+ .2200 17.i!JM

n IP~ ~. . 11il:z1 IDC1I... 27SD .,@,. .m e + :lZSl.1 + ZIDl:I ,. 2200 12.250

,. (l . 411 2,, 1~ 1Q0I .. a100 Ii, ·u ~ • 22£0 • Ei4Dtl ,• .uoo n .soc
19 [' 4 '- :l. ,, 330G • J71iQ ., 2710 4- 14DD + 300111 ·_. 16~00
220il

(4. I. 3. 2) 330C "" 2751 ,~ U!iil!>i -., 2250 + 2000 • 1 8.500

2750

21 (il ,2.1.~ llal!I .a. l 751 * 13-tllD + 1400 + :zooo + '1 1.rf:il!'lCI
2200

22 (4. Z. 3.. 111 33tlD +:Ulm+ 2250 ➔-- 2Ui0 +·i&il4QllJ • 17.7!5il'.I
llOO
2J (... 31. ,. :rJ UDU"" ll'SD + 2251 + 2250 + 6~ll0 * 22.,l]DCI
2200

2• (4. J, :z. '~ '56DU • ·J501!J t 22 SO ➔• J:llJO+ 6alt!U + 23-J:ISJ

uoc
SL-.p « klltnlify IIMi (lpdnal Aatgnrmnt
fn::m ,he co-weeted 11blfii, l'he pecmutntami wrth 11\e mininum IDl:al COa1 •~-

• Pllfflllilall• 11~ (3,. ii. I . I)

i11 Lix::atlm A 1D epartmen1 !

• LOCDHGn C Dc!partme1111 ,

~ LocatJM ID Depmtment 2

• ihlal Coat: i 2,25CJ

Canduslon
1he cpumal pl a ~l a1 mpa ri:rnenls Iha; m.anjrri~zes lhe total 11G11'mpm1Han ~ost ia·

• 1 ilaoa'l:iDn A: Dep1111ment 3

" l.Wla:n ii: D ~ 1 4

• Locatlrm C: IDBl!l•rimen~ ,

• Loatian D: Depa.-unefll :Z

"1ih1~ VJangemenll .-.s:ultl- kn 'l h~ ffi_1~l!ffll\i ·t ataJ 1rans:ptH1AHDl!I t'OSI of 1 :2.ii.211a

1
 ~I d be c:areitodr
Th&nl you ~ar poin1•Ag1thar c1111U YDt..t~ 11gt11_. lte d~mnce rn111 r1x
~H il!'d. Let·~ ~c t 1hM and redo lhe 101uuon.

Coneoted Dts anc e Maira: ,and Flow Mt1b'ia

Sap 1: ~ illll lnpg l Ddl i

• Can ielec l DfltallOI Ma1tillf ~

1

Rlillll1II • a
l!O
a
,o
A

8 tu ◄O

ttO
IC

liK Ol!IIJ rwlavao111,a1 i ~

rN atlCe tluu the cmr!ICl~d m_:nn1 dces nar contajn ntra, eniri
.,. ffi:CludJ!~

2 I

1
l!(] zo ID

40 90
55
l
~ 2.: •• ~p rcw: CNll i:aln•lallGlil
and J ~ac ed In l~H oo s p a:nd Q
'The lfW pon dan cc.■ bctwffn 1MJ1dep111 b 1,en l9 i
res plC DW ~ Ii Ql\i'~l'll by

Slap :i: FIU In ta Tabla ,_,All PDalllll Pm 11 .utrtt,-.-.

W• mfl create a la blr th31 c•lcuf1'1t!!!l lhe 10111 t~po
1 1 r1at~011J cost fer l!nch permuta1lon

bn~Nf an the 0111tat:ad lin anm fflftia..

11111
--••-M. ■. e. Da l
TOIII Clllltl Cal I iifWI
kF t? · - D)
al 500 + JlOO 117.0QJ
1 [ l. 2. J4 4} 400 + ~ &CJC • 560 0 • l frDCI ,i

2 t1 , 2,111•.s1
I .5.JOO
3 (1,3,2,41 800 + 800 • 5600 • 1600 • l fiflD + ;J:300

I 6_-400
4 (1, ,, 4. 2U 800 + J200 • ~ + 22 501+ 200 0 • Z15U

~60 0 .1o 140 0 + 14DiiJ .;. 160 0 +,JMJU * 1'6,15 0

2750

560 0 + 160CI • 12 • ► lli5U + 2000 ...,. 11.,4 00

275 0
1IMO
7 (2, 1, J,4' 400 + ~ &00 ., 720 0 • 1 r:.oc t ill &ml • l.7Y

4DD-t use ,.. 721110. 1.to[II • 3t.oo .... 2r!Sa 'I.D:iD

I (2. l~ 4, JU

I (2, 3, 'I,~, .. ..J, _-+ ~ 600 22..50 •

.;1- l lJDD .& 360 0 + '1'00 ! i!IJ.,L50

f.,I_MSiB go Ct, citGPT

Scenario 1:

Sales = Current volume*Sellirng price = 50000

units * $1.50 = $75000

Variable cost = Current volum e • variable cost =

50000 units • $0.75 = $37,500

Net Income = Sales - Variable cost - Fixed cost

Net Income = $75000-$37,500-$12000

Net Income - $25,500

Scenario 2:

New Sales = New Volume * Selllng price =

$70,0 00* $1.50 = $105000

New Variab le cost = New Volume• New Variable

Price = $70,000*$1 =$70,000

New Fixed Cost = Fixed cost + Increased Fixed

cost = $12000+$5000 = $17,,o oo

Net Income = New Sales - New Variable cost -

New Fixed cost

Net Income= $105000-$70,000-$17,000 =

$18000

The profit has reduced substantially from

$25500 to $18000
So, the company should not buy the new
equipment
Fizl!d Cost
Brl!alc £111?n Point • (Snlu Prfre per Unit - Vnriab/1! Cosr p,tr Unit)

Breakeven point= $12000/ ($1.50-$0.75) =

16,000 units For Scenario 1

You would need to sell 16,000 units in order to

cover your fixed costs. If you sell your anticipated
50,000 units then your profit would be $25,500.

Unit Salea . ,....._ 4-tpi•

!liFl\•r - -- - - - -- -- - - - -- - - ,

-- ..,,, __~ ,__

I

---------
. . . I~-- - - --
" .:.•- -,:7._,;---c:.,:--,,_---:~-:-:.,::-,--:c
,~11,~-,"",.,,,.-,
,_ ---:~'""
u., --,-
,,..,,,,.-...,-.---l1
•.,11;11
!./1,,111.,kl\l

Breakeven point= $17000/ ($1.50-$1) = 34,000

units For Scenario 2

You would need to sell 34,000 units in order to

cover your fixed costs. If you sell your anticipated
70,000 units then your profit would be $18,000.

---

f v ri,oc~
1. Calculating the Z-Score for a 99% Service
Level:
■ Desired Service Level: 99%
■ Using the standard normal
distribution, the z-score
corresponding to a 99% service level
is calculated. This value represents
how many standard deviations away c-

from the mean a particular value is.

For a 99% service level, the z-score is
approximately 2.326.
2. Calculating the Standard Deviation of
Lead Time-Daily Usage:
■ Standard Deviation of Daily Usage: 4
gallons/day
• M ean Lead Time: 6 days
■ The formula used is: Standard
Deviation of Lead Time- Daily
Usage=Standard Deviation of Daily
Usagex(Mean Lead Time}112
■ Calculation: 4x6112=9.80 gallons
3. Calculating the Reorder Point:
■ Mean Daily Usage: 80 gallons/day
■ Using the formula: Reorder Point=
(Mean Daily UsagexMean Lead
Time}+(zxStandard Deviation of Lead
Time-Daily Usage)
■ Calculation: (80x6}+(2.326x9.80)
■ Simplifying this: 480+
(22.7935)=502.79 gallons

Explanation:
The goal of these calculations is to
determine the reorder point for corn
sweetener at a bakery. The reorder point
is the inventory level at which a new
order should be placed to replenish
stock, ensuring that there is no shortage
before the new supply arrives. This is
particularly important for managing
inventory efficiently and avoiding
stockouts.
Here's a step-by-step explanation of the
calculations:
. UlcHIVI 1::, •
. Z-Score for a 99% Service Level:
• Service Level: This refers to the
probability of not facing a
stockout during the lead time. A
99% service level means there's
only a 1% chance of running
out of stock before the next
delivery.
• Z-Score: This is a statistical
measure that indicates how
many standard deviations an
element is from the mean of a
distribution. For a 99% service
level in a normal distribution,
the z-score is approximately
2.326. This tells us how far from
the mean demand we need to
set our reorder point to achieve
the desired service level.
2. Standard Deviation of Lead Time-
Daily Usage:
• Standard Deviation of Daily
Usage: It measures the
variability in daily usage of corn
sweetener.
• Mean Lead Time: This is the
average time it takes for a new
order of corn sweetener to be
delivered.
• The formula used incorporates
the square root of the mean
lead time because the
variability (standard deviation)
of total usage over a period
increases with the square root
of time.
3. Reorder Point Calculation:
• This is where we combine our
undPr--t;inrlinro ~~ .., _:,, . ...
 UI UI I ll'C' •

3. Reorder Point Calcula t.ion 1

• This1is w h e re w·e combine 0

Ur 1

u n detstanding o f da ily usage.

1

variability in usage, le ad ti m e,
,alind des1
ired service levet
• The formula is.=R eo rd er Point
=
(M ea n D.aily UsagexM1 ea.n Lead
Time)+(zxStandar,d Devi a ti o n
of 1

Lead Time-Daily u ,s ag e)
1

• T he ·f ir st p a rt 1
( M e.a1
n Daif·y
ilJsagexMean le a d T im e)
calculates th e ex pe ct ed to ta l
us a,g e ov er th e l,e a d time.
• Th1e s,e co n1d p a rt (zxStandard1
Dev ia tio n o f Lead Ti.me-DaH·y
1

U sa ge ) ad d s a sa fe ty st oc k~
T hi s,
sa fe ty st o clk is catcul~ated b as
1

ed
o n th e valniability in u.s a1g 1 e an d
th e de.s ire d se rv ic e le v,e l
(rep~esented\ b y th e z- scoreJ !f
tt
ensures th a t even 1if us ag e is
hi gh er th an av·e ra ge . t ih e· b a.k
er y
is unlikely to run1o u t o f co m 1

sw ee te ne r be fo re th e n e xt
delivery.

!r
Answer(l):
As per the given data,
Monthly demand, D = 360 boxes
Operating days = 20 days per month
:. Daily usage rate, d = 360/20 = 18 boxes per
day
Daily production rate, p = 36 boxes per day
Setup cost, S = $60 per run
Holding cost, H = $2 per box per month

Answer (1)-(A):

Economic run size, EPQ = sqrt(2 * D * S/ (H * (1 - d /p)))

60
- 2 X 360 X
2X ( JS )
1 - -36
= 207.85
Economic run size, EPQ = 208 boxes

Explanation:
• Economic run size, EPQ =
sqrt(2*D*S/(H*(l-d/p)))
• Maximum inventory = lmax = EPQ*
(1-d/p)
• Length of production run or
Number of days in a run= EPQ/p

Step2

Answer (1)-(B):

Maximum inventory, Imax = EPQ • (1 - d/ p)

= 208 X ( 1 - ~: )
= 104
Maximum inventory, lmax = 104 boxes
Answer (1)-(B):

Maximum inventory, Imax = EPQ • (1 - d/ p)

= 208 X ( 1- !! )
= 104
Maximum Inventory, lmax = 104 boxes

Answer (1)-(C):

Length of production nm or Number of days in a nm = EPQ/

-208
-
36
= 5.78
Length of production run or Number of days
in a run = 5.78 days

Answer

Answer (1)-(A):
Economic run size, EPQ = 208 boxes

Answer (1)-(B):
Maximum inventory, lmax = 104 boxes

Answer (1)-(C):
Length of production run or Number of days
in a run= 5.78 days
Solution:

Let,

FC = Fixed Cost

VC = Variable Cost Per Unit

Then,

Option FC vc
Buy 0 8
Make 100000 4

Then,

Cross Over Point Between Two Options =

Absolute Difference Between Fixed Costs of Two
Options / Absolute Difference Between The
Variable Cost Per Unit of Two Options

Cross Over Point Between Option Buy and Make

=I o - 100000 I / I a - 4 I =2sooo
Let,

Q = # No. of Boards Sold

Then,

Total Cost = FC + VC (Q)

Now, we will plot the total cost lines for all the
two options by taking the hypothetical values as
mentioned below:
Now, we will plot the total cost lines for all the
two options by taking the hypothetical values as
mentioned below:

Quantity Total Cost

Buy Make
0 0 LOOOOO
1000 8000 104000
2000 16000 108000
3000 24000 112000
4000 32000 116000
5000 40000 120000
6000 48000 124000
7000 56000 128000
8000 64000 132000
9000 72000 136000
10000 80000 140000
11000 88000 144000
12000 96000 148000
13000 104000 152000
14000 112000 156000
15000 120000 160000
16000 128000 164000
17000 136000 168000
18000 144000 172000
19000 152000 176000
20000 160000 180000
21000 168000 184000
22000 176000 188000
23000 184000 192000
24000 192000 196000
25000 200000 200000
26000 208000 204000
27000 216000 208000
28000 224000 212000
29000 232000 216000
30000 240000 220000
31000 248000 224000
32000 256000 228000
33000 264000 232000
34000 272000 236000
35000 280000 240000

Total Cost Comparision

l00000

250000

-e 150000

·-
50000

0 lOOO 6!JOO l000 I IOOO ~ 11000 /1000 1<000 11000 J0000 5l000
Q'Ua .l"ttJtY
37. Ans,w er is ID - 19.74 gaUon
38,. Answer is, B - 5.64 gaUon

Explana.tion

37"' D ry cleaning uses average =20 gallons

1

sta,ndard deviation (theta) = 2 gallons

Lead Time - 4 days
Service Level = 9 2.% (z = 1~41)
1

01-- 45 days
1

Safety stock= z* theta* (Ol·+LT) = l,.-4 1*2* (49)

= .19.74

38. z * theta * LT = l,.41 *2 * 4 = 5.64 gallons

St•2 A

39~Answer is B - ,853.5 gallon

40~Answer is C - 86

Ex!plana,tlon

39. 'R OP = dbar *LT+ 2*SQRT[(LT*theta·" 2l+

(dbarA2*theta"2)]ROP= (80 x6) + 2*33 Sqrt
1

[(6X4"2) + (80"2 X 2"2)] =: 853~49·8 3

1

*ROP = Re0rder Point

1