Problem 1: You are a manager of CircuitTown, which sells Xbox2010. The demand for Xbox2010 in the holiday season is 200 units with probability 0.8 and 400 units with probability 0.2. You have to take an order from MSFT in advance. You can either purchase 200 units or 400 units. The purchase price is $150 per unit and the retail price is $300 per unit. After the holiday, you dump unsold units to leftover.com with price $50 per unit. Build a decision tree and decide how many units you want to order. Problem 2: You have taken over as inventory manager at Dino’s Florists. You would like to use EOQ to compute the best quantity of orchids to order. The previous manager at Dino’s ordered orchids once a month in quantities of 1,000 to simply match the monthly demand. Orchids are expensive to order with an ordering cost of $300 per order. Holding cost is estimated at 15% of product cost annually, with a product cost of $60 per unit. a. What is economic order quantity decision for Dino’s Florists? b. What is the number of orders per year? c. What is the annual holding cost? d. What is the reorder point (ROP)? e. Above (d) assumes no safety stock. Given that the standard deviation of demand during lead time is 8 orchids, compute the amount of safety stock and the new ROP, assuming that you desire no more than 5% stockout level. Problem 3: Suppose that you are the manager of a production department that uses 400 boxes of rivets per year. The supplier quotes you a price of $8.50 per box for an order size of 199 boxes or less, a price of $8.00 per box for orders of 200 to 999 boxes, and a price of $7.50 per box for an order of 1,000 or more boxes. See the demand schedule in the table below. You assign a holding cost of 20 percent of the price to this inventory. Assume ordering cost is $80/order. Discount Schedule Order Range(Boxes) Unit Cost (C) 1 1 - 199 $8.50 2 200 - 999 $8.00 3 1000+ $7.50 What order quantity would you use if the objective is to minimize total annual costs of holding, purchasing, and ordering?
Problem 1: You are a manager of CircuitTown, which sells Xbox2010. The demand for Xbox2010 in the holiday season is 200 units with probability 0.8 and 400 units with probability 0.2. You have to take an order from MSFT in advance. You can either purchase 200 units or 400 units. The purchase price is $150 per unit and the retail price is $300 per unit. After the holiday, you dump unsold units to leftover.com with price $50 per unit. Build a decision tree and decide how many units you want to order.
Problem 2: You have taken over as inventory manager at Dino’s Florists. You would like to use EOQ to compute the best quantity of orchids to order. The previous manager at Dino’s ordered orchids once a month in quantities of 1,000 to simply match the monthly demand. Orchids are expensive to order with an ordering cost of $300 per order. Holding cost is estimated at 15% of product cost annually, with a product cost of $60 per unit.
a. What is economic order quantity decision for Dino’s Florists?
b. What is the number of orders per year?
c. What is the annual holding cost?
d. What is the reorder point (ROP)?
e. Above (d) assumes no safety stock. Given that the standard deviation of demand during lead time is 8 orchids, compute the amount of safety stock and the new ROP, assuming that you desire no more than 5% stockout level.
Problem 3: Suppose that you are the manager of a production department that uses 400 boxes of rivets per year. The supplier quotes you a price of $8.50 per box for an order size of 199 boxes or less, a price of $8.00 per box for orders of 200 to 999 boxes, and a price of $7.50 per box for an
order of 1,000 or more boxes. See the demand
Discount Schedule Order Range(Boxes) Unit Cost (C)
1 1 - 199 $8.50
2 200 - 999 $8.00
3 1000+ $7.50
What order quantity would you use if the objective is to minimize total annual costs of holding, purchasing, and ordering?
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