Operations Management
17th Edition
ISBN: 9781259142208
Author: CACHON, Gérard, Terwiesch, Christian
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 10, Problem 9PA
An online shoe retailer’s annual cost of holding inventory is 35 percent. The firm operates with a days-of-supply of 20 days, and assume there are 365 days per year. What is the inventory holding cost (in $) for a pair of shoes that the firm purchased for $50? [LO10-3]
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Students have asked these similar questions
Computers 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 cost
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?
Company XYZ makes bicycles. XYZ produces 400 bicycles a month. They must buy tires from a supplier at a cost of $20 per tire. The inventory holding cost rate is 15% and ordering costs $50 per order.
Part i) Let’s assume that there is no shortage inventory allowed.
Calculate optimal annual order quantity
Calculate annual total inventory cost ^already have the answer for this one. Just input the whole question so it would make more sense.
Part ii) Let’s assume that shortage inventory is allowed. With that being said, we know that the shortage cost per unit of item is $5 per year. <<this is the one that I am stuck on.
Calculate optimal annual order quantity
Calculate annual total inventory cost
Hint: Each bicycle has two tires.
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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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, operations-management and related others by exploring similar questions and additional content below.Similar questions
- You are the operations manager of a firm that uses the continuous review inventory control system. Suppose the firm operates 252 days a year and has the following characteristics for its primary item: Demand = 25,000 units/year Ordering cost = $30/order Holding cost = $1/unit/year Lead time = 4 days Standard deviation in daily demand = 10 units What is the total holding cost per year, including annual holding cost for safety stock (to the nearest whole number)? (Service level=95%) answer is 645 but why?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_forwardMedtronic 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.)arrow_forward
- Demand for your product averages 20 units per day, with a standard deviation of 4. Your lead time is 5 days. What should your reorder point be, if you want to have a 95% chance of not running out of products during the lead time? With this reorder level, how much safety stock do you have?arrow_forwardcompany sells 20,000 radios evenly throughout the year. The cost of carrying one unit of inventory for one year is P8, and thepurchase order cost per order is P32. What is the economic orderquantityarrow_forwardThe principal goal of inventory management systems is to balance the costs of ordering, shipping, and receiving goods with the cost of carrying those goods, while simultaneously meeting the firm's policy with respect to avoiding running short of stock and disrupting production schedules. True Falsearrow_forward
- Suppose that your company sells a product for which the annual demand is 10,000 units. Holding costs are $1.00 per unit per year, and setup costs are $200 per order. What is the minimum total stock administration cost for the product? Select one: a. $1,000 b. $2,000 c. $10,000 d. $200arrow_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_forwardDo you think the safety stock (safety inventory) could be negative? What is the meaning of a negative safety inventory (hint: safety stock is the difference between the optimal inventory and the average demand)?arrow_forward
- Assume that JAO, Inc., a manufacturer of electronic test equipment, uses 14,400 units of an item annually. Its order cost is P500 per order, and the carrying cost is P10 per unit per year. It requires 10 days to place and receive an order. 1. The ordering costs is 5,696 4,026 6,000 4,8002. The inventory costs is 6,000 12,000 9,600 8,052arrow_forwardDaily demand for a certain product is normally distributed, with a mean of 100 and a standard deviation of 15. The supplier is reliable and maintains a constant lead time of 5 days. The cost of placing an order is $10 and the cost of holding inventory is $0.50 per unit per year. There are no stock-out costs, and unfilled orders are filled as soon as the order arrives. Assume sales occur over 360 days of the year. Your goal here is to find the order quantity and reorder point to satisfy a 90 percent probability of not stocking out during the lead time.a. What type of system is the company using?b. Find the order quantity.c. Find the reorder point.arrow_forwardPlease do not give solution in image formate thanku. A semiconductor manufacturer purchases enormous amounts specialty gases to be used in its manufacturing processes. Its order quantity for argon is 1,400 cylinders, and it places many orders during any given year. This manufacturer holds no safety stock because the supplier is very close and demand for this gas is flat. Over a year's time (in the long run), what would be the average inventory level for this gas?arrow_forward
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