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Q1) Dell Computers Purchases Integrated Chips at $350 Per Chip. The Holding Cost Is $35 Per Unit

Bell Computers should order 200 units of integrated chips for a minimum annual cost of $1,446,380. With a 10% holding cost, the optimal order quantity is 200 units for an annual cost of $1,445,880. Kumon should carry 50 units of safety stock for art sets to minimize total incremental costs. A restaurant needs a reorder point of 62 bottles of special sauce to maintain no more than a 10% risk of stockout during a two week lead time. First Printing's reorder point is 73,500 pages of documents to maintain a 97% service level with a mean 4 day lead time and standard deviation of 1 day. Granville Cigar's reorder point is 1,718 cigars to

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Q1) Dell Computers Purchases Integrated Chips at $350 Per Chip. The Holding Cost Is $35 Per Unit

Bell Computers should order 200 units of integrated chips for a minimum annual cost of $1,446,380. With a 10% holding cost, the optimal order quantity is 200 units for an annual cost of $1,445,880. Kumon should carry 50 units of safety stock for art sets to minimize total incremental costs. A restaurant needs a reorder point of 62 bottles of special sauce to maintain no more than a 10% risk of stockout during a two week lead time. First Printing's reorder point is 73,500 pages of documents to maintain a 97% service level with a mean 4 day lead time and standard deviation of 1 day. Granville Cigar's reorder point is 1,718 cigars to

Uploaded by

Shaneen Angelique Morales
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Class Assignment Solution 4 (Inventory Management- DD)

Q1) Dell Computers purchases integrated chips at $350 per chip. The holding cost is $35 per unit
per year, the ordering cost is $120 per order, and sales are steady, at 400 per month. The
company’s supplier, Rich Blue Chip Manufacturing, Inc., decides to offer price concessions in
order to attract larger orders. The price structure is shown below.

a) What is the optimal order quantity and the minimum annual cost for Bell Computers to
order, purchase, and hold these integrated chips?

T
b) Bell Computers wishes to use a 10% holding cost rather than the fixed $35 holding cost
in (a). What is the optimal order quantity, and what is the optimal annual cost
Solution
YI
However, if Bell Computers orders 200 units, which is optional with the discount model, then:
N
Bell Computers should order 200 units for a minimum total cost of $1,446,380.
(b) Step 1, under the lowest possible price of $300:

Because 196 < 200, this EOQ is infeasible for the $300 price. So we compute the EOQ for the
next higher price of $325:
Because 188 is between 100 and 199, this second EOQ is feasible. Thus, the best possible order
quantities are 188 (the first feasible EOQ) and 200 (the price-break quantity for the lower price
of $300). Step 2 uses (12-9) to compute the total cost of the candidate order quantities:

The minimum order quantity is 200 units yet again because the overall annual cost of $1,445,880

T
is less than when ordering 188 units, which has an overall cost of $1,566,119.
Q2) The class sets are ordered once each year by Kumon, and the reorder point, without safety
stock ( dL ), is 100 art sets. Inventory carrying cost is $10 per set per year, and the cost of a
stockout is $50 per set per year. Given the following demand probabilities during the lead time,
how much safety stock should be carried?
YI
Solution
N

The safety stock that minimizes total incremental cost is 50 sets. The reorder point then becomes
100 sets 1 50 sets, or 150 sets.
Q3) A restaurant uses an average of 50 bottles of a special sauce each week. Weekly usage of
sauce has a standard deviation of 3 bottles. The manager is willing to accept no more than a 10
percent risk of stockout during lead time, which is two weeks. Assume the distribution of usage
is normal.
D= 50 jars per week
ϭd =3 jars per week
LT = 2 weeks
Acceptable risk 10 percent, so service level is .90

Solution
ROP = (Average daily demand x Lead time in days) + ZϭdLT

T
Q4) First Printing has contracts with legal firms in San Francisco to copy their court
documents. Daily demand is almost constant at 12,500 pages of documents. The lead time for
paper delivery is normally distributed with a mean of 4 days and a standard deviation of 1 day. A
97% service level is expected. Compute First’s ROP
YI
Solution
Z  1.88 for 97% service level
ROP  (Daily demand  Average lead time in days)  Z  Daily demand  LT
ROP  (12,500  4)  (1.88)(12,500)(1)  50,000  23,500  73,500 pages

Q5) Granville Cigar stocks Cuban cigars that have variable lead times because of the difficulty
in importing the product: lead time is normally distributed with an average of 6 weeks and a
N
standard deviation of 2 weeks. Demand is also a variable and normally distributed with a mean
of 200 cigars per week and a standard deviation of 25 cigars
Solution
ROP  (200  6)  1.28 dLT

ROP  1,200  (1.28)(405) @ 1,200  518  1,718 cigars

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