MGMT335Hw3_Devon_Martin

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Fayetteville State University *

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335

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Chemistry

Date

Dec 6, 2023

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2

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Devon Martin 1. A produce distributor uses 5200 packing crates per year. The manager has assigned an annual carrying cost of $6 per crate. The ordering cost is $50. (a) How much is the order quantity based on the EOQ model? The formula for EOQ is: EOQ = [2(annual demand)(ordering costs)] / holding costs Annual demand is = 5200 This value comes from the statement that the distributor uses 5200 crates per year . Ordering costs are = 50 Holding costs are = $6 per unit Holding costs and carrying costs are interchangeable terms meaning the same thing. [2(5200)(50)] / 6 2x5200= 10400x50= 520,000/6= 86,666.67 = 294.39 Order quantity is about 294 units based on EOQ. (b) How much is the total cost using the EOQ model? Total Annual cost = Annual holding cost + Annual ordering cost First I have to find the values of annual holding cost and annual ordering cost. Annual holding cost = Average annual inventory x Holding cost per unit per year To find the value for average annual inventory I have to divide the EOQ by 2. 294/2=147 Now that I have the average annual inventory I can find the annual holding cost by multiplying average annual inventory which is 147 by holding cost which is 6. 147x6= $882 Annual Ordering cost = Number of orders per year x ordering cost = (Annual demand / EOQ) x Ordering costs To find the number of orders per year I have to take the Annual demand which is 5200 and divide that by the EOQ which is 294. 5200/294= 17.69 which would round up to 18 orders. Now for the annual ordering cost, I take the number of orders per year, 18, and multiply it by the ordering cost of $50. 18x50= $900 Now that I have both the annual holding cost ($882) and annual ordering cost ($900) I can add those values together to get my value for the total annual cost . $882+$900= $1782 Total Cost = 1782 ~OR~ Instead of rounding the number of orders to 18 before multiplying by the ordering costs it can be left alone at 17.687. In that case, it would be 17.687 x 50 = $884.35 Now that I have both the annual holding cost ($882) and annual ordering cost ($884) I can add those values together to get my value for the total annual cost. $882+$884= $1766 Total Cost = $1766
Devon Martin 2. A lab orders a number of chemicals from the same supplier with a lead time of two weeks. The assistant manager of the lab must determine how much of one of these chemicals to order. Usage of the chemical is appropriately normal with a mean of 12 ml per week and a standard deviation of 5 ml. The lab management decides that the desired service level for this chemical is 95%. Standard Deviation= 5 ml Lead time= 2 weeks Z= 1.65 per Z table for 95% Mean demand= 12 ml Service level= 95% a) What is the average amount of safety stock of the chemical? The safety stock formula is as follows: Safety stock = Z x Standard Deviation x Standard Deviation= 5 ml Lead time= 2 weeks Z= 1.65 per Z table for 95% 1.65 x 5 x = 11.67 11.67 rounded up to 12 units b) How many chemicals should he order? Order quantity is found by: Mean Demand + Z x Standard Deviation = Order Quantity Mean demand= 12 ml Z= 1.65 per Z table for 95% Standard Deviation= 5 ml 12 + 1.65 x 5 = 20.25 20.25 rounded down he should order 20 units of chemical.
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