1: A museum of natural history opened a gifl shop which operates 52 weeks per ye
ID: 331056 • Letter: 1
Question
1: A museum of natural history opened a gifl shop which operates 52 weeks per year. managing invertories has become a problem.Top-selling SKU is a bird feeder. sale are 18 uits per week, the supplier charges $60 per unit. Ordering cost is $45. annual holding cost 25 percernt of a feeder's value. management chose a 390-unit lot size
what is the annual cycle-inventory cost of the current policy of using a 390-unit lot size?
would a lot size of 468 be better?
2 : For the bird feeders in Example 1, calculate the EOQ and its total annual cycle-inventory cost. how frequently will orders be placed if the EOQ is used?
3: suppose that you are reviewing the inventory policies on an $80 item stocked at a hardware store. the current policy is to repleish inventory by ordering in lots of360 units. additional information is:
D= 60 units per week, or 3,120 units per year
S=$30 per oder
H= 20% of selling price, or $20 per unit per year
what is the EOQ?
What is the total annual cost of the current policy( Q=360), and how does it compare with the cost with using the EOQ?
4: A company buys re-writable DVDs ( 10 disks/ box) from a large mail- order distibutor
the company uses approximately 5,000 boxes/ year at a fairly constant rate
the distributor offers the followig quantity discount schedule:
* if < 500 boxes are ordered, then cost =10/ box
* if > 500 but < 800 boxes are ordered, then cost = $ 9.50
* if > 800 boxes are ordered, then cost = $9.25
fixed cost of purchasing = $25,and the cost of capital = 12% per year. there is no storage cost.
5: The on-hand inventory is only 10 units, and the reorder point R is 100. there are no backorders but there is one open order for @00 units. should a new order be placed?
6: demand for chicken soup at a supermarket is always 25 cases a day and the lead time is always 4 day. the shelves were just restocked with chicken soup, leaving an on-hand inventoy of only 10 cases. no backorders currently existm but there is one open order in the pipelibe for 200 cases. what is the invetory position? should a new order be placed?
7: The Office Supply shop estimates that the average demand for a popular ball-point pen is 12,000 pens per week with a standard deviation of 3,000 pens. the current inventory policy calls for replenishment orders 156,000 pen. the average lead time from the distributor is 5 weeks, with a standard deviation of 2 weeks. if management wants a 95 percent cycle-service level, what should the reorder point be?
Explanation / Answer
PLEASE FIND ANSWERS TO FIRST 2 QUESTIONS :
Answer to question 1 :
We define annual cycle inventory = Annual ordering cost + annual inventory carrying cost
Annual ordering cost
= Ordering cost x Number of orders
= Ordering cost x Annual demand/ Order quantity
= Ordering cost x ( weekly demand x 52 weeks ) / Order quantity
= $45 x 18 x 52/ 390
= $108
Annual unit holding cost
= 25 percent of $60
= $15
Annual inventory holding cost
= Annual unit inventory holding cost x Average inventory
= $15 x Order quantity / 2
= $15 x 390/2
= $2925
Therefore, total cycle inventory = $108 + $2925 = $3033
For lot size of 468 :
Annual ordering cost
= Ordering cost x Number of orders
= Ordering cost x Annual demand/ Order quantity
= Ordering cost x ( weekly demand x 52 weeks ) / Order quantity
= $45 x 18 x 52/ 468
= $ 90
Annual unit holding cost
= 25 percent of $60
= $15
Annual inventory holding cost
= Annual unit inventory holding cost x Average inventory
= $15 x Order quantity / 2
= $15 x 468/2
= $ 3510
Therefore, total cycle inventory = $ 90 + $3510 = $3600
Answer to question number 2 :
Economic Order Quantity ( EOQ )
= Square root ( 2 x ordering cost x Annual demand / Annual unit inventory cost )
= Square root ( 2 x 45 x 18 x 52 / 15 )
= 74.93 ( 75 rounded to nearest whole number )
Annual ordering cost
= Ordering cost x Number of orders
= Ordering cost x annual demand/ EOQ
= $45 x 18 x 52 / 75
= $561.60
Annual holding cost
= Annual unit holding cost x Average inventory
= $15 x 75/2
= $562.5
Therefore , annual cycle inventory cost = $561.50 + $562.50 = $1124.10
Frequency at which orders should be placed if EOQ is used = EOQ/weekly demand = 75/18 = 4.17 weeks( rounded to 2 decimal places)
FREQUENCY AT WHOCH ORDER SHOULD BE PLACED IF EOQ IS USED = 4.17 WEEKS
FREQUENCY AT WHOCH ORDER SHOULD BE PLACED IF EOQ IS USED = 4.17 WEEKS
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