Exercise 1

The sales of a popular dress at Merkle company the past 6 months have averaged 2,000 cases per month, which is the cu
cost of capital to be 12 percent. Insurance, taxes, breakage, handling, and pilferage are estimated to be approximately 6 p
percent of item cost. Because the cost of one case is $12.00, the cost of holding one case in inventory for 1 year is 0.18 ($
$38.00 per order regardless of the quantity requested in the order.
From this information, we have:

D = 24,000 cases per year.

S = $38 per order.
I = 18 percent.
C = $12.00 per case.
H= IC = $2.16.

Answer the following questions:

a) Determine the economic/optimal order quantity (EOQ model).
b) Determine the annual order/setup cost. How do you define the ordering or setup costs?
c) Determine the annual holding cost. How do you define the holding or carrying costs ?
d) Calculate the total annual cost.
e) How much is the percentage of cost reduction using the EOQ model, with respect to the current order quantity?

Annual Demand Rate (D) 24000 cases per year

Ordering or Setup cost (S) 38 $

Unit cost 12 $

Holding/Carrying Charge Rate (H) 2.16 $

a)
Economic Order Quantity (Q*) 919.00

b)
Annual Order/Setup cost 992.38 $

c)
Annual Holding cost 992.52 $

d)
Total annual cost 1984.90 $

e)
Total annual cost with EOQ 1984.90 $
Total annual cost with current quantity 2616.00 $
Difference between EOQ model and current quantity 631.10 $
Percentage of cost reduction 24.1%
 ses per month, which is the current order quantity. Merkle's cost is $12.00 per case. The company estimates its
mated to be approximately 6 percent of item cost. Thus, the annual inventory-holding cost are estimated to be 18
n inventory for 1 year is 0.18 ($12.00) = $2.16 per case per year. The cost of placing an order is estimated to be

current order quantity?

Regarding that in each order we are going to be ordering 919 units, then we divide the demand by the units of each order
estimates its
mated to be 18
ated to be

demand by the units of each order to know how many orders we are doing and multiplying by the cost of each order
cost of each order
paletizar
 Exercise 2

Southern Shirt Supplies Inc. distributes shirts for men and women of exclusive design to customers in the Southeast Euro
Ordering costs are $45.00 per order. One black shirt costs $3.80, and Southern uses a 20 percent annual holding cost rate
The average annual demand is 24,960 shirts, being the current order quantity 2,080 shirts per month.

Answer the following questions:

a) Determine the economic/optimal order quantity (EOQ model).
b) Determine the annual order/setup cost.
c) Determine the annual holding cost.
d) Calculate the total annual cost.
e) How much is the percentage of cost reduction using the EOQ model, with respect to the current order quantity?

Average Annual Demand (D) 24960

Ordering or Setup cost (S) 45 $

Unit cost 3.80 $

Holding/Carrying Charge Rate (H) 0.76 $

a)
Economic Order Quantity (Q*) 1719.00

b)
Annual Order/Setup cost 653.40

c)
Annual Holding cost 653.22

d)
Total annual cost 1,306.62 €

e)
Total annual cost with EOQ 1306.62
Total annual cost with current quantity 1330.40
Difference between EOQ model and current quantity 23.78
Percentage of cost reduction 1.8%
ustomers in the Southeast Europe. One of the most popular products is a fashionable basic black shirt.
rcent annual holding cost rate. Thus, the holding cost is H = IC = 0.20($3.80) =$0.76 per shirt per year.
per month.

current order quantity?

paletizar
 Exercise 3 (Economic Order Quantity model)

Crew Soccer Shoes Company is considering a change in its current inventory control system for soccer shoes.The informati

Average demand = 250 pairs/week

Order cost = $75/order
Unit cost = $21.50
Percent annual holding cost rate = 0.20
Number of weeks per year = 52

Answer the following questions:

a) Determine the Holding/Carrying Charge Rate.
b) What is the economic/optimal order quantity (EOQ model)?
c) Determine the annual order/setup cost.
d) Determine the annual holding cost.
e) Calculate the total annual cost.

Average Annual Demand (D) 13000

Ordering or Setup cost (S) 75

Unit cost (C) 21.50

Annual holding charge expressed as a percent of unit cost (I) 0.20

a)
Holding/Carrying Charge Rate (H) 4.30

b)
Economic Order Quantity (Q*) 673.00

c)
Annual Order/Setup cost 1,448.74 €

d)
Annual Holding cost 1,446.95 €

e)
Total annual cost 2,895.69 €
trol system for soccer shoes.The information regarding the shoes is as follows:
paletizar
 Exercise 4 (Economic Order Quantity model)

The Warren W. Fisher Fashion Corporation purchases 8,000 dresses each year. The unit cost of each dress is $10, and the
inventory for a year is $3. Ordering cost is $30 per order.

Answer the following questions:

a) What are the optimal order quantity?
b) What are the expected number of orders placed each year?
c) What are the expected time between orders? Assume that Fisher operates on a 200-day working year.

Annual demand (D) 8000

Ordering or Setup cost (S) 30

Holding/Carrying cost (H) 3

Unit cost 10

Number of working days per year 200

a)
Optimal order quantity (Q*) 400

b)
Expected number of orders (N) 20

c)
Time between orders (T) 10
st of each dress is $10, and the cost of carrying one dress in

working year.
paletizar
 Exercise 5 (Economic Order Quantity model)

A fashion company purchases 1360 bags each month. The unit cost of each bag is $15, the ordering cost is $65 per order,

Answer the following questions:

a) What are the optimal order quantity?
b) Determine the annual order/setup cost.
c) Determine the annual holding cost.
d) Calculate the total annual cost.
e) What are the expected number of orders placed each year?
f) What are the expected time between orders? Assume that Fisher operates on a 230-day working year.

Annual demand (D) 16320

Ordering or Setup cost (S) 65

Holding/Carrying cost (H) 5

Unit cost 15

Number of working days per year 230

a)
Optimal order quantity (Q*) 651

b)
Annual Order/Setup cost 1629.49

c)
Annual Holding cost 1627.50

d)
Total annual cost 3256.99

e)
Expected number of orders (N) 25

f)
Time between orders (T) 9
ordering cost is $65 per order, and the carrying cost of one bag for a year is $5.

working year.
paletizar
 Exercise 6 (Quantity discount model)

Whole Nature Textile Company sells a eco-friendly garment for which the annual demand is 5,000 boxes. At the moment
is paying $6.40 for each box; carrying cost is 25% of the unit cost; ordering costs are $25. A new supplier has offered to se
the same item for $6.00 if Whole Nature Textile Company buys at least 3,000 boxes per order.
Should the firm stick with the current supplier, or take advantage of the new quantity discount?

In order to take the decision, please answer the following questions:

a) Determine the economic order quantity at price of the current supplier ($6.40).
b) Determine the economic order quantity at price of the new supplier ($6.00).
c) Determine the total annual cost with the current supplier.
d) Determine the total annual cost with the new supplier.
f) If the company wants to achieve a level of service equal to 99%, the lead time is 2 weeks and the standard deviation of
demand/week is 30 boxes/week, estimate the safety stock and the reorder point if the company uses a perpetual invento
system.

Annual Demand (D) 5000

Price per unit (with current supplier) 6.40

Price per unit (with new supplier) 6.00

Holding/Carrying cost per unit per year expressed as a percent of price (I) 0.25

Ordering or Setup cost (S) 25

a)
Economic Order Quantity (P= $6.40) 395

b)
Economic Order Quantity (P= $6.00) 408

c)
Total annual cost (with current supplier) 32,632.46 €

d)
Total annual cost (with new supplier) 32,291.67 €
340.79 €
f)
Average demand per week 96.1538461538462
Demand stad deviation 30
Lead time (weeks) 2
Service level 0.99
Stockout risk 0.01

z_alfa 2.33
Safety stock 99.00

Reorder point 292.00

5,000 boxes. At the moment, it
ew supplier has offered to sell
.
unt?

nd the standard deviation of the

any uses a perpetual inventory

$
$

*The minimum order is 3000, so that would be Q for this supplier

paletizar
 Exercise 6
Model the inventory levels over a 30-week period for a company anticipating the demand outlined in the
provided table. The company uses a fixed period system with a period of 4 weeks and a Imax of 100 units.
The lead time is 2 weeks.

Imax 100
T 4

Week Inventory Demand IP Q Scheduled Receipts

0 85 0
1 70 15 70 30 0
2 64 6 94 0 30
3 76 18 76 0 0
4 44 32 44 0 0
5 18 26 18 82 0
6 16 2 98 0 82
7 87 11 87 0 0
8 82 5 82 0 0
9 81 1 81 19 0
10 66 15 85 0 19
11 70 15 70 0 0
12 66 4 66 0 0
13 65 1 65 35 0
14 57 8 92 0 35
15 82 10 82 0 0
16 76 6 76 0 0
17 61 15 61 39 0
18 48 13 87 0 39
19 77 10 77 0 0
20 73 4 73 0 0
21 57 16 57 43 0
22 52 5 95 0 43
23 93 2 93 0 0
24 83 10 83 0 0
25 52 31 52 48 0
26 43 9 91 0 48
27 80 11 80 0 0
28 62 18 62 0 0
29 55 7 55 45 0
30 39 16 84 0 45
 nd outlined in the
a Imax of 100 units.

Receipt If order Order cost 200.00 €

Holding cost 40.00 € per unit -year
1 Stockout cost 600.00 €
0
30 0 N orders 8
0 0 Avg inventory 63.16666667
0 1 Stockouts 0
0 0
82 0 Order cost 1,600.00 €
0 0 Inventory holding cost 1,457.69 €
0 1 Stockouts cost - €
0 0 Total cost 3,057.69 €
19 0
0 0
0 1
0 0
35 0
0 0
0 1
0 0
39 0
0 0
0 1
0 0
43 0
0 0
0 1
0 0
48 0
0 0
0 1
0 0