Operations Management
17th Edition
ISBN: 9781259142208
Author: CACHON, Gérard, Terwiesch, Christian
Publisher: Mcgraw-hill Education,
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Chapter 10, Problem 10PA
Summary Introduction
To determine: The average cost to hold each unit of the item in inventory.
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Demand for an item is constant at 500 units a year. Unit cost is $50, reorder cost is $80 and holding costis 60 per cent of value a year. Any demand that occurs when no stock remains is lost. What is the minimum selling price that makes it profitable to stock the item?
Medtronic sells medical devices. The company enjoys many growth opportunities, and so it measures its inventory holding cost at the rate of 25% per year. It currently turns over its inventory 3 times per year. Its gross margin (the difference between revenue and cost) as a percentage of its revenue is an enviable 65%.
a. For an item that costs Medtronic $600 to produce, what would be the cost ($s) to hold this item for one year in inventory?
b. For an item that costs Medtronic $350 to produce, what is the cost to hold it in inventory ($s)? (Assume it remains in inventory for the average amount of time for the company.)
The best quantity to order One of the formulas for inventorymanagement says that the average weekly cost of ordering, payingfor, and holding merchandise iswhere q is the quantity you order when things run low (shoes,TVs, brooms, or whatever the item might be); k is the cost ofplacing an order (the same, no matter how often you order); c isthe cost of one item (a constant); m is the number of items soldeach week (a constant); and h is the weekly holding cost per item(a constant that takes into account things such as space, utilities,insurance, and security). Find dA>dq and d2A>dq2.
Chapter 10 Solutions
Operations Management
Ch. 10 - It is costly to hold inventory, but inventory can...Ch. 10 - A delivery truck from a food wholesaler has just...Ch. 10 - Prob. 3CQCh. 10 - Prob. 4CQCh. 10 - Prob. 5CQCh. 10 - Prob. 6CQCh. 10 - Prob. 7CQCh. 10 - Prob. 8CQCh. 10 - Prob. 9CQCh. 10 - Prob. 10CQ
Ch. 10 - Prob. 11CQCh. 10 - Prob. 1PACh. 10 - Prob. 2PACh. 10 - Prob. 3PACh. 10 - An electronics manufacturer has 25 days-of-supply...Ch. 10 - Prob. 5PACh. 10 - Prob. 6PACh. 10 - Prob. 7PACh. 10 - Prob. 8PACh. 10 - An online shoe retailers annual cost of holding...Ch. 10 - Prob. 10PACh. 10 - Prob. 11PACh. 10 - Prob. 12PACh. 10 - Prob. 13PACh. 10 - Prob. 14PACh. 10 - Prob. 15PACh. 10 - Prob. 16PACh. 10 - A retailer has annual sales of 500,000 and an...Ch. 10 - Prob. 18PACh. 10 - Prob. 19PACh. 10 - Prob. 1CCh. 10 - Prob. 3CCh. 10 - Prob. 4C
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- Kohl’s sells jeans for $40 a pair that it purchases for $20 a pair. Its annual holding cost percentage is 25 percent and these jeans turn 10 times per year. What holding costdoes it incur for each pair of jeans?arrow_forwardI need a detailed explanation on how to solve this problem: A paint shop implements an inventory policy on its stock of white paint, which costs the store $6 per can. Monthly demand for cans of white paint is normal with mean 28 and standard deviation 8. The replenishment lead time is 14 weeks. Excess demand is backordered, but costs $10 per back ordered can in labor and loss of goodwill. There is a fixed cost of $15 per order, and the holding cost is based on 30% interest rate per annum. In your computations, assume 4 weeks per month. - Write down the model name and parameters. - What are the optimal lot size and reorder points for white paint (include the formulas)? - What is the optimal safety stock (include the formula)? *** Suppose the paint shop from the above problem adopts a service level policy. - What are the optimal lot size and reorder points for white paint, such that 90% of the cycles are filled without backordering (include all formulas)? - What is the fill rate…arrow_forwardThe owner and manager of a hardware store reevaluates his inventory policy for hammers. sells an average of 50 hammers a month, so you have placed purchase orders for 50 hammers with a distributor at a cost of $20 each at the end of each month. But the owner does not place all the store orders and find that this takes much of your time. He estimates that the value of his time spent ordering hammers is $75. a) What must be the unit cost of maintaining hammers for the current policy of the hardware store to be Optimal according to the EOQ model? b) If the distributor delivers an order for hammers in 5 business days (out of an average of 25 per month), what should be the reorder point, according to the EOQ model?arrow_forward
- jeweler purchases silver for use in its products. The firm uses 190 grams of silver per week and purchases silver for $0.52 per gram from a supplier. Each time the firm orders silver from the supplier, the firm must pay a $11 order processing charge. The firm's annual holding cost percentage is 38%. Do not round intermediate calculations. Assume there are 52 weeks in a year and round your answer to two decimal places. If the jeweler orders 1,950 grams of silver with each order, what is the sum of the annual holding and ordering costs? dollars Please do fast ASAP fastarrow_forwardAn item sells for $25 a unit, but a 10% discount is offered for lots of 150 units or more. A company uses this item at the rate of 20 units per day. The setup cost for ordering a lot is $50, and the holding cost per unit per day is $.30. The lead time is 12 days. Should the company take advantage of the discount?arrow_forwardComputers lose value as they are stored in inventory. This is an example of whichcomponent of a firm’s inventory holding cost?a. Opportunity cost of capitalb. Storage costc. Spoilage costd. Obsolescence costarrow_forward
- Rocky Mountain Tire Centre sells 20,000 tires of a particular type per year. The ordering cost for each order is $40, and the holding cost is 20% of the purchase price of the tires per year. The purchase price is $20. per tire if fewer than 500 tires are ordered, $18. Per tire if more than 500 but fewer than 1,000 tires are ordered and $17. per tire if 1,000 or more tires are ordered. How many tires should Rocky Mountain order each time it places an order? Quantity Unit Price 1-499 $20. 500-999 $18. 1000 & over $17 Based on available information, lead time demand for CD-ROM drives averages 50 units (normally distributed), with a standard deviation of 5 drives. Management wants a 97% service level. What value of Z should be applied? How many drives should be carried as safety stock?arrow_forwardXYZ Inc. needs 400 kgs of a material per month. It costs OMR 100 to make and receive an order, and it takes 12 workdays to receive it. The annual holding cost is 15 % of purchase price. The price OMR 1 per kg. The company is operating workdays per week in a 52-week year. At what level of inventory in Kgs should the company be placing orders ? Round-up to the nearest integerarrow_forwardA Mercedes dealer pays $40,000 for each car purchased (wholesale price). The annual holding cost is estimated to be 30% of the dollar value of inventory. The dealer sells an average of 1200 cars per year. They believe that demand is backlogged but estimate that if they are short one car for one year, the loss in future profits is about 10% of the wholesale price. Each time the dealer places an order for cars, ordering costs amount to $1600. Assume there are 360 work days per year. Question: What percent of the time do shortages occur? I've deduced the percent of shortage time to be 25%, but am not sure I've set up my formulas correctly.arrow_forward
- A Mercedes dealer purchases vehicles for $20,000. The annual holding cost is estimated to be 25% of the dollar value of inventory. The dealer sells an average of 500 cars per year. He believes that demand is backlogged, but estimates that if he is short one car for one year, he will lose $20,000 in future profits. Each time the dealer places an order for cars, the ordering cost amounts to $10,000. What is the (s, Q) ordering policy that results in a 90% CSL?arrow_forwardA manufacturing company uses 25,000 components at an even rate during a year. Eachorder placed with the supplier of the components is for 2,000 components, which is theeconomic order quantity. The company holds a buffer inventory of 500 components. Theannual cost of holding one component in inventory is $2.What is the total annual cost of holding inventory of the component?arrow_forwardA firm incurs a fixed order cost of $10 per order and 20 percent annual holdingcosts. It purchases an item for $2.50 and sells 1000 units per year. It is offered a 5 percentdiscount if it purchases 800 units or more. How much does it save each year (includingpurchasing, ordering, and holding costs) if it purchases enough units to get the discount?arrow_forward
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