6. (16 pts) I sell three different products: Pl, P2 and P3. I purchase the produ

Question

6. (16 pts) I sell three different products: Pl, P2 and P3. I purchase the products from supplier. I order all three products always together, and I order every three weeks The yearly demands and holding costs of the products are as follows. The joint ordering cost is $400 each time. (one year = 51 weeks) (Note: the cycle length of three weeks is not the optimal value.) Pl 2300500 1200 P2 P3 Demand per year Holding cost per year per product $140 a. Determine the combined monthly ordering cost of all products $200 $80 b. Determine the monthly inventory holding cost of all products

Explanation / Answer

a) Number of orders per year = 51 weeks / 3 weeks per order = 17 orders

Combined annual ordering cost of all products = 17 orders * $ 400 per order = $ 6,800

Combined monthly ordering cost of all products = 6800/12 = $ 567

b) Order quantity of P1 = 2300/17 = 135.29

Order quantity of P2 = 500/17 = 29.41

Order quantity of P3 = 1200/17 = 70.59

Annual inventory holding cost = (H1*Q1+H2*Q2+H3*Q3)/2 = (140*135.29+200*29.41+80*70.59)/2 = 15235

Monthly inventory holding cost = 15235/12 = $ 1,270

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