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Solutions To Inventory Management Practice Problems

This document summarizes the solution to an economic order quantity problem involving variable unit prices based on order quantity discounts. It is determined that: 1) The optimal order quantity based on the lowest unit price is infeasible and the next lowest price results in an EOQ of 1,127 balls. 2) Total annual costs are calculated for quantities of 1,127 and 5,000 balls, with an order of 5,000 balls being less costly at $120,275.

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manjeet39
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2K views

Solutions To Inventory Management Practice Problems

This document summarizes the solution to an economic order quantity problem involving variable unit prices based on order quantity discounts. It is determined that: 1) The optimal order quantity based on the lowest unit price is infeasible and the next lowest price results in an EOQ of 1,127 balls. 2) Total annual costs are calculated for quantities of 1,127 and 5,000 balls, with an order of 5,000 balls being less costly at $120,275.

Uploaded by

manjeet39
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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KRM Pg 338, Prob 10 Sams Cat Hotel

a. Economic order quantity


d
= 90/week
D = (90 bags/week)(52 weeks/yr) = 4,680
S = $54
Price = $11.70
H = (27%)($11.70) = $3.16
2 DS
2(4,680)($ 54)
EOQ

159,949.37
H
$3.16
= 399.93, or 400 bags.
Time between orders, in weeks
Q 400

0.08547 years 4.44 weeks


D 4680
b. Reorder point, R
R = demand during protection interval + safety stock
d
Demand during protection interval = L = 90 * 3 = 270 bags
Safety stock = zdLT
. .
When the desired cycle-service level is 80%, z 084
dLT d L
3
= 15
= 25.98 or 26
Safety stock = 0.84 * 26 = 21.82, or 22 bags
R 270 22 292
c. Initial inventory position = OH + SR BO = 320 + 0 0
320 10 = 310.
Because inventory position remains above 292, it is not yet time to place an order.
d. Annual holding cost
Annual ordering cost
D
4, 680
S
$54
Q
500
Q
500
27% $11.70
H
2
2
$505.44
$789.75
When the EOQ is used these two costs are equal. When Q 500 , the annual holding
cost is larger than the ordering cost, therefore Q is too large. Total costs are $789.75 +
$505.44 = $1,295.19.
e. Annual holding cost
Annual ordering cost
Q
400
D
4, 680
27% $11.70
H
S
$54
2
2
Q
400
$631.80
$631.80
Total cost using EOQ is $1,263.60, which is $31.59 less than when the order quantity is 500
bags.

KRM Pg 339, Prob 19


Sams Cat Hotel with a P system
a. Referring to Problem10, the EOQ is 400 bags. When the demand rate is 15 per day, the
average time between orders is (400/15) = 26.67 or about 27 days. The lead time is 3
weeks 6 days per week = 18 days. If the review period is set equal to the EOQs
average time between orders (27 days), then the protection interval (P + L) = (27 + 18)
= 45 days.
For an 80% cycle-service level
z = 0.84
PL d P L

P L (6.124) 27 18
z P L

= 41.08

Safety stock =
= 0.84(41.08) = 34.51 or 35 bags
T = Average demand during the protection interval + Safety stock
T = (15*45) + 35 = 710
b. In Problem 10, the Q system required a safety stock of 22 bags to achieve an 80% cycleservice level. Therefore, the P system requires a safety stock that is larger by (35 22)
= 13 bags.
c. From Problem 10, inventory position, IP = 320.
The amount to reorder is T IP = 710 320 = 390.

KRM Pg 339, Prob 24, Wood County Hospital


a. D = (1000 boxes/wk)(52 wk/yr) = 52,000 boxes
H = (0.l5)($35/box)=$5.25/box

2 52, 000 $15


2 DS

545.1 or 545 boxes


H
$5.25
Q
D
C H S
2
Q
900
52, 000
C900
$5.25
$15.00 $3, 229.16
2
900
545
52, 000
C545
$5.25
$15.00 $2,861.82
2
545
EOQ

The savings would be $3,229.16 $2,861.82 = $367.34.


b. When the cycle-service level is 97%, z = 1.88. Therefore,
z d L
2
Safety stock =
= (1.88)(100)
= 1.88(141.42) = 265.87, or 266 boxes
d
R = L + Safety stock = 1000(2) + 266 = 2,266 boxes
c. In a periodic review system, find target inventory T, given:
P = 2 weeks
L = 2 weeks
Safety stock = z P L

PL d P L

P L (100) 2 2

= 200 units.
Safety stock = 1.88(200) = 376 units
T = Average demand during the protection interval + Safety stock
T = 1000(2 + 2) + 376
T = 4,376 units

KRM Pg 356, Prob 4. (a and b)


Step 1: Calculate the EOQ at the lowest price ($6.50):
2 DS
2(350)(50)(100)
EOQ

1190.4 or 1190 balls


H
.38(6.5)
This solution is infeasible. We cannot buy 1190 balls at a price of $6.50 each. Therefore
we calculate the EOQ at the next lowest price ($7.25):
2 DS
2(350)(50)(100)
EOQ

1127.13 or 1127 balls


H
.38(7.25)
This solution is feasible.
Step 2: Calculate total costs at the feasible EOQ and at higher discount quantities:
Q
D
H S PD
2
Q
1,127
17,500
C1127
[.38($7.25)]
($100) $7.25(17,500)
2
1,127
C1127 $1,552.44 $1,552.79 $126,875.00 $129, 980.23
C

5, 000
17, 500
[.38($6.50)]
($100) $6.50(17, 500)
2
5, 000
$6,175.00 $350.00 $113, 750.00 $120, 275.00

C5000
C5000

a. It is less costly on an annual basis to buy 5,000 baseballs at a time.


b. The total annual costs associated with buying 5,000 balls at a time are $120,275.00

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