Q1) Boreki Enterprises has the following 10 items in inventory.

Theodore Boreki asks you

graduate, to divide these items into ABC classifications

a) Develop an ABC classification system for the 10 items.

b) How can Boreki use this information?
c) Boreki reviews the classification and then places item A2 into the A category. Why mig

Item Annual Demand Cost/Unit ($) Annual Value ($)

Annual Value %
A2 3000 50 150,000 725.00%
B8 4000 12 48,000 0.00%
C7 1500 45 67,500 0.00%
D1 6000 10 60,000 0.00%
E9 1000 20 20,000 0.00%
F3 500 500 250,000 0.00%
G2 300 1500 450,000 0.00%
H2 600 20 12,000 0.00%
I5 1750 10 17,500 0.00%
J8 2500 5 12,500 0.00%
1,087,500 725.00%
dore Boreki asks you, a recent OM

A category. Why might he do so?

Classification Items Percentage Annual Usage

A G2 41% 450,000
A F3 23% 250,000
A A2 14% 150,000
B C7 6% 67,500
B D1 6% 60,000
B B8 4% 48,000
C E9 2% 20,000
C J5 2% 17,500
C J8 1% 12,500
C H2 1% 12,000
1,087,500
 Q2) Southeastern Bell stocks a certain switch connector at its central
warehouse for supplying field service offices. The yearly demand for these
connectors is 15,000 units. Southeastern
estimates its annual holding cost for this item to be $25 per unit. The cost to
place and process an order from the supplier is $75. The company operates
300 days per year, and the lead time to receive an order from the supplier is
2 working days.

a) Find the economic order quantity.

b) Find the annual holding costs.
c) Find the annual ordering costs.
d) What is the reorder point?

ANNUAL DEMAND (D) 15000

HOLDING COST PER YEAR 25
ODERING COST PER ORDE 75
NUMBERS OF WORKING 300
LEAD TIME 2

(A) Economic Order Quantit 300 UNITS

(B) Annual Holding Costs $ 3,750.00
(c) Annual Ordering Costs $ 3,750.00
Daily Demand 50
(D) Reorder Point 100 UNITS
central
nd for these

nit. The cost to

any operates
the supplier is
 Q3) Race One Motors is an Indonesian car manufacturer. At its largest manufacturing
company produces subcomponents at a rate of 300 per day, and it uses these subcom
12,500 per year (of 250 working days). Holding costs are $2 per item per year, and or
are $30 per order.

a) What is the economic production quantity?

b) How many production runs per year will be made?
c) What will be the maximum inventory level?
d) What percentage of time will the facility be producing components?
e) What is the annual cost of ordering and holding inventory?

D 12500 ANNUAL DEMAND

S 30 SETUP COST
H 2 HOLDING COST
P 300 PRODUCTION COST
D 50 USAGE RATE
(a) (EPQ) 612.37244 1.2 671
(b) Number of Production Runs Per Year 18.628912 19
(c) Maximum Inventory Level 559.16667 560
(d) Percentage of Time Producing Componen 0.1666667 17%
(e) Annual Cost of Ordering and Holding Inventory
Ordering Cost: 570 dollars
Holding Cost: 560 dollars
Total Cost: 1130 dollars per year
argest manufacturing facility, in Jakarta, the
d it uses these subcomponents at a rate of
item per year, and ordering (setup) costs

nents?

units
runs per year
units
Q4
M. P. VanOyen Manufacturing has gone out on bid for a regulator component. Expected
The item can be purchased from either Allen Manufacturing or Baker Manufacturing. Th
table. Ordering cost is $50, and annual holding cost per unit is $5.

a) What is the economic order quantity?

b) Which supplier should be used? Why?
c) What is the optimal order quantity and total annual cost of ordering, purchasing, a

Allen MFG
Quantity Unit Price
1 1–499 16.00
2 500–999 15.50
3 1000 + 15.00

Annual Demand (D) 8400

Ordering Cost (S) $ 50.00
Holding Cost (H) $ 5.00
EOQ 409.8780306 410

(b) Choosing the Supplier

We check which supplier gives the best price for EOQ (410 units):

Allen MFG: 410 falls in the first tier (1-499), so price = $16.00 per unit.
Baker MFG: 410 falls in the second tier (400-799), so price = $15.60 per unit.

(c) Optimal Order Quantity & Total Annual Cost

Ordering Cost = $ 1,024.39

Holding Cost = $ 1,025.00
Purchase Cost = $ 131,040.00
Total Cost = $ 133,089.39
gulator component. Expected demand is 700 units per month.
ng or Baker Manufacturing. Their price lists are shown in the
nit is $5.

ost of ordering, purchasing, and holding the component?

Baker MFG
Quantity Unit Price
1–399 16.10
400–799 15.60
800 + 15.10

UNITS

$ 15.60
Question 3:
Chicago’s Hard Rock Hotel distributes a mean of 1,000 bath towels per day to
guests at the pool and in their rooms. This demand is normally distributed with a
standard deviation of 100 towels per day, based on occupancy. The laundry firm
that has the linens contract requires a 2-day lead time. The hotel expects a 98%
service level to satisfy high guest expectations.

a) What is the safety stock?

b) What is the ROP?

Average daily demand (D) 1000 TOWELS

Standard deviation of daily demand (σd) 100 TOWELS
Lead time (L) 2 DAYS
Service level 9800% (which corresponds to a Z-score of 2.0
2.05
(a) Safety Stock Formula: 205 1.41 289.9138
(b) Reorder Point (ROP) Formula: 2290 TOWELS
per day to
ibuted with a
laundry firm
pects a 98%

1.6449

esponds to a Z-score of 2.05 from statistical tables)

290 TOWELS
Question 4:
A gourmet coffee shop in downtown San Francisco is open 200 days a year and sells an
coffee beans a day. (Demand can be assumed to be distributed normally, with a standa
day.) After ordering (fixed cost 5 $16 per order), beans are always shipped from Hawaii
annual holding costs for the beans are $3.

a) What is the economic order quantity (EOQ) for Kona coffee beans?
b) What are the total annual holding costs of stock for Kona coffee beans?
c) What are the total annual ordering costs for Kona coffee beans?
d) Assume that management has specified that no more than a 1% risk during stocko
the reorder point (ROP) be?

Number of operating days per year (N) 200 DAYS

Daily demand (D) 75 POUNDS
Standard deviation of daily demand (σd) 15 POUNDS
Lead time (L) 4 DAYS
Ordering cost (S) $ 16.00 PER ORDER
Annual holding cost per pound (H) $ 3.00 PER POUND
Service level 9900% (implies Z-score = 2.33, from statistica

(a) Economic Order Quantity (EOQ) Formula: 400 POUNDS

(b) Total Annual Holding Cost: $ 600.00
(c) Total Annual Ordering Cost: 369.9 370.00 POUNDS
 a year and sells an average of 75 pounds of Kona
mally, with a standard deviation of 15 pounds per
hipped from Hawaii within exactly 4 days. Per-pound

ans?
e beans?
?
% risk during stockout is acceptable. What should

core = 2.33, from statistical tables)

2
Question 5:
Hip Replacements, Inc., has a master production schedule for its newest model, as sho
below, a setup cost of $50, a holding cost per week of $2, beginning inventory of 0, an
time of 1 week. What are the costs of using all three methods for this l0-week period?
a) L4L
b) EOQ
c) POQ

Week 0 1 2 3 4 5 6 7
Gross Requirement 0 0 50 0 0 35 15
Schedule Reciept
Project onhand
Net Requirement
Planned Reciept
Planned order Release

Setup (ordering) cost 50 per order

Holding cost 2 per unit week
Lead time 1 week
Beginning inventory 0 units

(a) Lot-for-Lot (L4L) Method 200

Annual Demand (D) = Total demand in 10 weeks 200
Weekly average demand 20
Scaling to 52 weeks 1040
(b) Economic Order Quantity (EOQ) Method 228.03509 228 rounded

Total Ordering Cost: 50

EOQ 114
Total Holding Cost: 2280 TC 2330
(c) Periodic Order Quantity (POQ) Method 11.4
Total Ordering Cost: 50
Average Inventory 100
Total Holding Cost: 2000
TOTAL COST 2050
newest model, as shown
ing inventory of 0, and lead
this l0-week period?

8 9 10
0 100 0