MAN 6501 - Operations Management
MID-TERM EXAMINATION 2
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Q 1:
Consider a firm with a daily demand of 100 units, a production rate per day of 500 units, a setup cost of $200, and an annual holding cost per unit of $10. Suppose that the firm operates 300 days per year. How many units of inventory must their storage area be able to hold?
a) close to 975
b) close to 980
c) close to 1095
d) close to 1224
e) close to 1225
Answer: b
Solution
EPQ =
2 DS
d
H 1 −
p
EPQ = 1224.74
Max Inventory, Imax = EPQ * (1-d/p) = 1224.74* (1-100/500) = 979.92
Storage Capacity = Max Inventory = 980
Q 2:
If annual demand is 24,000 units, orders are placed every 0.5 months, and the cost to place an order…show more content… Suppose its inventory holding cost per unit per year doubles while the annual demand and the ordering cost per order do not change. What will happen to the EOQ?
a) It doubles.
b) It increases by 41.42%.
c) It remains the same.
d) The EOQ reduces by about 30%.
e) It quadruples (increases by 400%).
Answer: d
Solution
EOQ =
2 DS
H
New EOQ when the inventory holding cost doubles will be:
2 DS
2H
New EOQ is about 70.7% of the original EOQ.
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Q 8: The annual demand for an item is 2400 units. The inventory holding cost is $ 6.00 per unit per year. The demand is continuous and constant, that is, 200 units/month. The item is purchased in two lots. The size of the first lot is 1600 units and the size of the second lot is
800 units. Find the total annual cost of holding inventory.
a)
b)
c)
d)
e)
7200
4000
2400
1200
600
Answer: b
Solution
1600
800
1
2
3
4
5
6
7
8
9
10
11
12
Months
Average inventory during the first 8 months = 1600/2 = 800
Average inventory during the next 4 months = 800/2 = 400
Inventory carrying cost/unit/month = 6.00/12 = 0.50
Total annual cost of holding inventory = 800*8*0.5 + 400 *4*0.5 = 4,000
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Q 9: A manufacturing company sells its products directly to customers and operates 5 days a week,
52 weeks a year. The production department of this company can produce at the rate of 60 units per day. The setup cost for a