Budgetary and Space Constrain A Company produces three types of electronic lamp.

Question

Budgetary and Space Constrain A Company produces three types of electronic lamp. The annual inventory carrying cost is computed at 18 percent of unit price of the lamp and shortages are not allowed. The maximum investment at any one point in the inventory is $10,000. Additionally, the warehouse has only 1,500 square feet that can be allocated to these products. The floor space required is proportional to the unit cost. The pertinent data shown in the following table ts Item 3 3800 10 75 2.0 Item1 Data information Demand per year (units) Cost per item Order Cost Floor space per item (sq ft) Item 2 2200 6 73 1.2 2000 70 1.6 a)Find the optimal investory policy for the three types if products b)What is the ordering policy if the maximum allowable space for these products is 2000 sq ft instead of 1500 sq ft?

Explanation / Answer

a- EOQ of these three items

b- Ordering policy will be remain same

Item 1 Item 2 Item 3 Annual Demand 2000 2200 3800 Cost per item 8 6 10 Holding cost (18% of cost) 8*18%=1.44 6*18%=1.08 10*18%=1.8 Ordering cost 70 73 75 Maximum number of items stored 1500/1.6=938 1500/1.2=1250 1500/2.0=750 maximum amount of investment at a time 10,000 10,000 10,000 EOQ 2*2000*70/1.44=441 2*2200*73/1.08=545 2*3800*75/1.8=563 Investment at a time 441*8+441/2*1.44+70=3675 545*8+545/2*1.08+73=4727 563*8+563/2*1.8+75=5086

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