Practical Management Science, Loose-leaf Version
5th Edition
ISBN: 9781305631540
Author: WINSTON, Wayne L.; Albright, S. Christian
Publisher: Cengage Learning
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Chapter 12.4, Problem 8P
Summary Introduction
To use: The solver table to find the impact of change in the annual fixed order cost and annual holding cost on the optimal order quantity.
Inventory and supply chain models:
The functions of inventory and supply chain are one of the most important business decision areas for an organization. The first important aspect of these concepts is to have adequate inventory on hand. The second important aspect is to carry a little amount of inventory as possible.
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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.
If annual sales for your product are 715, and the holding cost per unit is $5, and the cost to place an order is $350, then:
1. Calculate the EOQ, and round it to 2 decimal places.
2. Calculate the ordering and holding costs, per year, if you use the EOQ.
What is the Sum of Ordering and Holding costs (rounded to nearest dollar)?
Economic Order Quantity (EOQ) is a method used to calculate the ideal quantity to order. The underlying concepts of EOQ is the balance between ordering cost and holding cost.
Q1. Using the data points given below, perform two calculations:
Q2. Use an excel file to calculate the EOQ order. Make sure to use the formula bar to create the EQO formula. Make an excel file similar to the image attached.
A = annual demand = 20,000
Cp = Cost of an order which includes preparing and following up the order = $100.00
Ch = Unit inventory cost per year or item cost (P) $100 times annual carrying cost rate (r) (25%)
Chapter 12 Solutions
Practical Management Science, Loose-leaf Version
Ch. 12.4 - Prob. 1PCh. 12.4 - Prob. 2PCh. 12.4 - Prob. 3PCh. 12.4 - Prob. 4PCh. 12.4 - Prob. 5PCh. 12.4 - Prob. 6PCh. 12.4 - Prob. 7PCh. 12.4 - Prob. 8PCh. 12.4 - Prob. 9PCh. 12.4 - Prob. 10P
Ch. 12.4 - Prob. 11PCh. 12.5 - Prob. 12PCh. 12.5 - Prob. 13PCh. 12.5 - Prob. 14PCh. 12.5 - Prob. 15PCh. 12.5 - Prob. 16PCh. 12.5 - Prob. 17PCh. 12.5 - Prob. 18PCh. 12.5 - Prob. 19PCh. 12.5 - Prob. 20PCh. 12.5 - Prob. 21PCh. 12 - Prob. 27PCh. 12 - Prob. 28PCh. 12 - Prob. 29PCh. 12 - Prob. 30PCh. 12 - Prob. 31PCh. 12 - Prob. 32PCh. 12 - Prob. 33PCh. 12 - Prob. 34PCh. 12 - Prob. 35PCh. 12 - Prob. 36PCh. 12 - Prob. 38PCh. 12 - Prob. 39PCh. 12 - Prob. 40PCh. 12 - Prob. 42PCh. 12 - Prob. 43PCh. 12 - Prob. 44PCh. 12 - Prob. 45PCh. 12 - Prob. 46PCh. 12 - Prob. 47PCh. 12 - Prob. 48PCh. 12 - Prob. 49PCh. 12 - Prob. 53PCh. 12 - Prob. 54PCh. 12 - In terms of K, D, and h, what is the average...Ch. 12 - Prob. 56PCh. 12 - Prob. 57PCh. 12 - Prob. 58PCh. 12 - Prob. 59PCh. 12 - Prob. 60PCh. 12 - Prob. 61PCh. 12 - Prob. 62PCh. 12 - Prob. 63PCh. 12 - Prob. 64PCh. 12 - Prob. 65PCh. 12 - Prob. 66PCh. 12 - Prob. 67PCh. 12 - Prob. 68PCh. 12 - Prob. 69PCh. 12 - Prob. 70PCh. 12 - Prob. 71PCh. 12 - Prob. 1.1CCh. 12 - Prob. 1.2CCh. 12 - Prob. 1.3C
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- The soft goods department of a large department store sells 175 units per month of a certain large bath towel. The unit cost of a towel to the store is $2.50 and the cost of placing an order has been estimated to be $12.00. The store uses an inventory carrying charge of I = 27% per year. Determine (a) the optimal order quantity, (b) the order frequency, and (c) the annual holding and setup cost.arrow_forwardConsider the basic EOQ model (no uncertainty). Annual holding cost (???AHC) is $2,400. Find annual ordering cost (???AOC). Group of answer choices Cannot be answered because there is missing information AOC=$2,400, since AHC=AOC at the economic order quantity AOC=$0, since there is no uncertainty $1,200, since AOC=AHC/2 at economic order quantity. $4,800, since AOC=2 x AHC at economic order quantityarrow_forwardA company has an annual demand of 16,000 products. The products cost $2 each. Ordering and transport costs amount to $200 per order. The annual cost of holding one product in stock is estimated to be $1.20 . Assume that the company adopts the EOQ as its order quantity and it has to have half of the EOQ as inventory on hand when an order is placed. How many weeks does it take for an order to be delivered to the company? (1 year = 52 weeks) A) PPE may be credited by 2 million dollarsB) Revaluation OCI may be credited by 3,3 million dollarsC) Accumulated depreciation may be debited by 4 million dollarsD) Accumulated depreciation may be credited by 1,3 million dollarsE) Other (Please Specify)arrow_forward
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- A health and nutrition store stocks a multivitamin with an annual demand of 1,000 bottles has Co = $24.50 and Ch = $7.The demand exhibits some variability such that the lead-time demand follows a normal probability distribution with ? = 25 and ? = 5. (a)What is the recommended order quantity? (Round your answer to the nearest integer.) (b)What are the reorder point and safety stock if the store desires at most a 4% probability of stock-out on any given order cycle? (Round your answers to the nearest integer.) reorder pointsafety stock (c)If a manager sets the reorder point at 30, what is the probability of a stock-out on any given order cycle? (Round your answer to four decimal places.) How many times would you expect a stock-out during the year if this reorder point were used? (Round your answer to the nearest integer.)arrow_forwardIn the calculation of an optimal policy for an all-units discount schedule, you firstcompute the EOQ values for each of the three order costs, and you obtain: Q(0) =800, Q(1) =875, and Q(2) =925. The all-units discount schedule has breakpointsat 750 and 900. Based on this information only, can you determine what the optimal order quantity is? Explain your answer.arrow_forwardHayes electronics assumed with certainty that the ordering cost is $450 per order and the inventory carrying cost is $170 per unit per year. However, the inventory model parameters are frequently only estimates that are subject to some degree of uncertainty. Consider four cases of variation in the model parameters as follows: (a) both ordering cost and carrying cost are 10% less that originally estimated, (b) both ordering cost and carrying cost are 10% higher than originally estimated, (c) ordering cost is 10% higher and carrying cost is 10% lower than originally estimated, and (d) ordering cost is 10% lower and carrying cost is 10% higher than originally estimated. Determine the optimal order quantity and total inventory cost for each of the four cases. Prepare a table with values from all four cases and compare the sensitivity of the model solution to changes in parameter values.arrow_forward
- Using excel. Apply the EOQ model to the following quantity discountsituation for which D5 500 units per year, Co5 $40, and theannual holding cost rate is 20%. What order quantity do yourecommend?DiscountDiscountCategoryOrder Size(%)unit Cost10 to990$10.002100 or more3$9.70arrow_forwardRed Corporation uses the reorder point modelto plan its purchases. It sellsitssole productat the following daily amounts:Minimum=30,000; Average=40,000;Maximum=60,000. Its supplier takes 3 dayson average and 4 days maximum to deliverthe order. The-reorder point would be A. 240,000B. 160,000C. 120,000D. 90,000arrow_forwardThe difference(s) between the basic EOQ model and the pro-duction order quantity model is (are) that: a) the production order quantity model does not require theassumption of known, constant demand.b) the EOQ model does not require the assumption ofnegligible lead time.c) the production order quantity model does not require theassumption of instantaneous delivery.d) all of the above.arrow_forward
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