EBK OPERATIONS MANAGEMENT
14th Edition
ISBN: 9781260718447
Author: Stevenson
Publisher: MCG COURSE
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Textbook Question
Chapter 12, Problem 7DRQ
a. List the major assumptions of the EOQ model.
b. How would you respond to the criticism that EOQ models tend to provide misleading results because values of D, S, and H are, at best, educated guesses?
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Even if we have substantial uncertainty in the parameters in the EOQ-model, it is still quite a useful model. Why?
Vallie Enterprise sells a product that cost $200 per unit and has a monthly demand of 500 units. The annual holding cost per unit is calculated as 2% of the unit purchase price. It costs the business $30 to place a single order.
The maximum number of units sold for any one week is 150 and minimum sales 80 units. The vendor takes anywhere from 2 to 4 weeks to deliver the merchandise after the order is placed. The EOQ model is appropriate.
i) What is the cost minimizing solution for this product each year?
ii) Determine the re-order level, minimum inventory level and maximum inventory level for the
product.
c) Even if there is substantial uncertainty in the parameters in the EOQ-model, it is still quite a useful model. Discuss why.
Chapter 12 Solutions
EBK OPERATIONS MANAGEMENT
Ch. 12.3 - Prob. 1RQCh. 12 - What are the primary reasons for holding...Ch. 12 - What are the requirements for effective inventory...Ch. 12 - Briefly describe each of the costs associated with...Ch. 12 - What potential benefits and risks do RFID tags...Ch. 12 - Prob. 5DRQCh. 12 - Prob. 6DRQCh. 12 - a. List the major assumptions of the EOQ model. b....Ch. 12 - Explain briefly how a higher carrying cost can...Ch. 12 - What is safety stock, and what is its purpose?
Ch. 12 - Prob. 10DRQCh. 12 - What is meant by the term service level? Generally...Ch. 12 - Describe briefly the A-B-C approach to inventory...Ch. 12 - The purchasing agent for a company that assembles...Ch. 12 - Explain how a decrease in setup time can lead to a...Ch. 12 - What is the single-period model, and under what...Ch. 12 - Can the optimal stocking level in the...Ch. 12 - Prob. 17DRQCh. 12 - What trade-offs are involved in each of these...Ch. 12 - Who needs to be involved in inventory decisions...Ch. 12 - How has technology aided inventory management? How...Ch. 12 - To be competitive, many fast-food chains began to...Ch. 12 - As a supermarket manager, how would you go about...Ch. 12 - Sam is at the post office to mail a package. After...Ch. 12 - Give two examples of unethical conduct involving...Ch. 12 - Prob. 1PCh. 12 - a. The following table contains figures on the...Ch. 12 - A bakery buys flours in 25-pound bags. The bakery...Ch. 12 - A large law firm uses an average of 40 boxes of...Ch. 12 - Garden Variety Flower Shop uses 750 clay pots a...Ch. 12 - A produce distributor uses 800 packing crates a...Ch. 12 - A manager receives a forecast for next year....Ch. 12 - A food processor uses approximately 27,000 glass...Ch. 12 - The Friendly Sausage Factory (FSF) can produce hot...Ch. 12 - A chemical firm produces sodium bisulfate in...Ch. 12 - A company is about to begin production of a new...Ch. 12 - Prob. 12PCh. 12 - A mail-order house uses 18,000 boxes a year....Ch. 12 - A jewelry firm buys semiprecious stones to make...Ch. 12 - A manufacturer of exercise equipment purchases the...Ch. 12 - A company will begin stocking remote control...Ch. 12 - A manager just received a new price list from a...Ch. 12 - A newspaper publisher uses roughly 800 feet of...Ch. 12 - Given this information: Expected demand during...Ch. 12 - Given this information: Lead-time demand = 600...Ch. 12 - Demand for walnut fudge ice cream at the Sweet...Ch. 12 - The injection molding department of a company uses...Ch. 12 - A company uses 85 circuit boards a day in a...Ch. 12 - One item a computer store sells is supplied by a...Ch. 12 - The manager of a car wash received a revised price...Ch. 12 - A small copy center uses five 500-sheet boxes of...Ch. 12 - Ned's Natural Foods sells unshelled peanuts by the...Ch. 12 - Regional Supermarket is open 360 days per year....Ch. 12 - A service station uses 1,200 cases of oil a year....Ch. 12 - Caring Hospital's dispensary reorders doses of a...Ch. 12 - A drugstore uses fixed-order cycles for many of...Ch. 12 - Prob. 32PCh. 12 - Prob. 33PCh. 12 - Demand for jelly doughnuts on Saturdays at Don's...Ch. 12 - A public utility intends to buy a turbine as part...Ch. 12 - Skinner's Fish Market buys fresh Boston bluefish...Ch. 12 - A small grocery store sells fresh produce, which...Ch. 12 - Demand for devil's food whipped-cream layer cake...Ch. 12 - Prob. 39PCh. 12 - Demand for rug-cleaning machines at Clyde's...Ch. 12 - A manager is going to purchase new processing...Ch. 12 - A Las Vegas supermarket bakery must decide how...Ch. 12 - Offwego Airlines has a daily flight from Chicago...Ch. 12 - UPD Manufacturing produces a range of health care...Ch. 12 - Prob. 1.2CQCh. 12 - Prob. 2.1CQCh. 12 - SARAH LUBBERS AND CHRIS RUSCHE, GRAND VALLEY STATE...Ch. 12 - SARAH LUBBERS AND CHRIS RUSCHE, GRAND VALLEY STATE...Ch. 12 - Prob. 3.3CQCh. 12 - SARAH LUBBERS AND CHRIS RUSCHE, GRAND VALLEY STATE...Ch. 12 - Prob. 3.5CQCh. 12 - Prob. 1OTQCh. 12 - Prob. 2OTQCh. 12 - Prob. 3OTQCh. 12 - Prob. 4OTQ
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- A company begins a review of ordering policies for its continuousreview system by checking the current policies for asample of SKUs. Following are the characteristics of one item.Demand 1D2 = 64 units>week 1Assume 52 weeks per year2Ordering or setup cost 1S2 = $50>orderHolding cost 1H2 = $13>unit>yearLead time 1L2 = 2 weeksStandard deviation of weekly demand = 12 unitsCycle@service level = 88 percenta. What is the EOQ for this item?b. What is the desired safety stock?c. What is the reorder point?d. What are the cost implications if the current policy for this item is Q = 200 and R = 180?arrow_forwardXYZ Company must order tires from its warehouse. It costs $10400 to place an order and to review the inventory level. Annual tire sales are normally distributed with mean 18000 and variance 4,000,000. It costs $8 per year to hold a tire in inventory, and each order arrives two weeks after being placed. The Company uses periodic review (R, S) policy. What is the review interval R (in years), estimated using EOQ.? Select one: a. 0.3801 b. 0.19 c. 0.2687 d. 1.075 e. 0.1267arrow_forwardA company begins a review of ordering policies for its con-tinuous review system by checking the current policies for asample of SKUs. Following are the characteristics of one item.Demand 1D2 = 64 units>week 1Assume 52 weeks per year2Ordering or setup cost 1S2 = $50>orderHolding cost 1H2 = $13>unit>yearLead time 1L2 = 2 weeksStandard deviation of weekly demand = 12 unitsCycle@service level = 88 percenta. What is the EOQ for this item?b. What is the desired safety stock?c. What is the reorder point?d. What are the cost implications if the current policy for thisitem is Q = 200 and R = 180?arrow_forward
- Please do not give solution in image formate thanku. A given product has an expected demand of 240 units per month, with a standard deviation of 70 units per month. Leadtime is 0.5 months. Customer service level (CSL) has been set so that we have a value of k=1.28. We want to manage this product's inventory using a (R, S) periodic review policy. We plan to order every 2 months (R = 2 months). Using the k value from above, what is the order up to level, S, for this policy? Give your answer rounded to the closest integer. Since orders are placed every 2 months, and the demand is variable, the order quantities are not identical. But we can estimate an average order size. What is the expected average order size for the policy described above? Under this policy, how many orders are placed per year? Placing each order costs $100. What is the annual ordering cost?arrow_forwardA distributor of large appliances needs to determine the order quantities and reorderpoints for the various products it carries. The following data refer to a specii c refrigeratorin its product line:Cost to place an orderHolding costCost of refrigeratorAnnual demandStandard deviation of demand during lead timeLead time$10020 percent of product cost per year$500 each500 refrigerators10 refrigerators7 daysConsider an even daily demand and a 365-day year.a. What is the economic order quantity?b. If the distributor wants a 97 percent service probability, what reorder point, R, shouldbe used?arrow_forwardThe EOQ model isa) not very useful in practice since the assumptions areunrealisticb) finds the optimal safety stockc) is quite useful, due to the fact that the optimum is quite flatd) depending on the standard deviation of the demande) has an impact of the re-order-pointarrow_forward
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