Operations Management
2nd Edition
ISBN: 9781260484687
Author: CACHON, Gerard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 14, Problem 11PA
a)
Summary Introduction
To determine: The expected on-hand inventory.
b)
Summary Introduction
To determine: The in-stock probability.
c)
Summary Introduction
To determine: The average on-order inventory.
d)
Summary Introduction
To determine: The average on-order inventory.
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Students have asked these similar questions
A store has collected the following information on one of its products:Demand = 4,500 units/year Standard deviation of weekly demand = 12 units Ordering costs = $40/order Holding costs = $3/unit/year Cycle-service level = 90% (z for 90% = 1.28) Lead-time = 2 weeks Number of weeks per year = 52 weeks a.
If a firm uses the continuous review system to control the inventory, what would be the order quantity and reorder point?
Bakery A sells bread for $2 per loaf that costs
$0.50 per loaf to make. Bakery A gives an 80%
discount for its bread at the end of the day.
Demand for the bread is normally distributed
with a mean of 300 and a standard deviation of
30. What order quantity maximizes expected
profit for Bakery A? (use the normal distribution
table posted on Canvas and round up to the
nearest integer)
A golf specialty wholesaler operates 50 weeks per year. Management is trying to determine an inventory policy for its
1-irons, which have the following characteristics:
> Demand (D) = 2,000 units/year
> Demand is normally distributed
> Standard deviation of weekly demand = 2 units
> Ordering cost = $30/order
> Annual holding cost (H) = $5.00/unit
> Desired cycle-service level = 85%
> Lead time (L) = 4 weeks
Refer to the standard normal table for z-values.
a. If the company uses a periodic review system, P should be 3.87 weeks. (Enter your response rounded to the
nearest whole number.)
T should be units. (Enter your response rounded to the nearest whole number.)
Chapter 14 Solutions
Operations Management
Ch. 14 - Demand in each period follows the same normal...Ch. 14 - Prob. 2CQCh. 14 - For products with slow-moving demandfor example,...Ch. 14 - Prob. 4CQCh. 14 - Prob. 5CQCh. 14 - Prob. 6CQCh. 14 - Prob. 7CQCh. 14 - Prob. 8CQCh. 14 - If the target in-stock probability increases, then...Ch. 14 - Prob. 10CQ
Ch. 14 - Prob. 11CQCh. 14 - Prob. 12CQCh. 14 - Prob. 13CQCh. 14 - Prob. 14CQCh. 14 - Prob. 15CQCh. 14 - Prob. 16CQCh. 14 - Prob. 17CQCh. 14 - Prob. 18CQCh. 14 - Prob. 19CQCh. 14 - Prob. 1PACh. 14 - Prob. 2PACh. 14 - Prob. 3PACh. 14 - Prob. 4PACh. 14 - You are the owner of Hotspices.com, an online...Ch. 14 - Prob. 6PACh. 14 - Prob. 7PACh. 14 - Prob. 8PACh. 14 - Prob. 9PACh. 14 - Prob. 10PACh. 14 - Prob. 11PACh. 14 - Prob. 1CCh. 14 - Prob. 2CCh. 14 - Prob. 3CCh. 14 - CASE WARKWORTH FURNITURE1 Warkworth Furniture...Ch. 14 - CASE WARKWORTH FURNITURE1 Warkworth Furniture...
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- Among the following multi-period inventory models, which one has the highest probability of stockout? A. Fixed Order Quantity with Safety Stock B. Fixed Time Period Model C. Fixed Order Quantity D. Both Fixed Order Quantity & Fixed Order Quantity with Safety Stockarrow_forwardAnnual demand is 16000 units, cost per order is $75 and carrying cost per unit as a percentage is 10%. The company works 250 weeks a year; the lead-time on all orders placed is 6 working days. Assuming constant lead-time demand, and a unit cost of $45 what is the economic order quantity? What is the reorder point. If lead-time demand shows variability that follows a normal distribution with a mean μ =420 and a standard deviation σ =20, what will the revised reorder point if two stock-outs (shortages) are allowed? What is the company’s reorder point if the probability of a stock-out on any cycle is restricted to 0.05?arrow_forwardA retail outlet sells a seasonal product for $10 per unit. The cost of the product is $8 per unit. All units not sold during the regular season for half the retail price in an end-of-season clearance sale. Assume that the demand for the product is uniformly distributed between 200 and 800. a. What is the recommended ordering quantity? b. What is the probability of a stockout using your order quantity in (a)? c. To keep customers happy and returning to the store later, the owner feels that stockouts should be avoided if at all possible. What is your recommended order quantity if the owner is willing to tolerate a 0.15 probability of stockout? d. Using your answer to (c), what is the goodwill cost you are assigning to a stockout?arrow_forward
- The “how much to order” decision always has an influence on the followingcosts except: A. Annual purchasing costs.B. Annual carrying costs.C. Annual procurement costs.D. Total annual inventory costs.arrow_forwardA golf specialty wholesaler operates 50 weeks per year. Management is trying to determine an inventory policy for its 1-irons, which have the following characteristics:Demand (D) = 2,000 units/yearDemand is normally distributedStandard deviation of weekly demand = 3 unitsOrdering cost = $40/orderAnnual holding cost (H) = $5/unitsDesired cycle-service level = 90 percentLead time (L) = 4 weeksa. If the company uses a periodic review system, what should P and T be? Round P to the nearest week.b. If the company uses a continuous review system, what should R be?arrow_forwardWhat is the relationship between the average inventory and the in-stock probability?a. The more the inventory, the lower the in-stock probability.b. There isn’t a definitive relationship—more inventory could mean a lower or a higherin-stock probability.c. The more the inventory, the higher the in-stock probability.arrow_forward
- Torrance Refinery produces approximately 23.1 Million barrels of gasoline per year. A California distributor sources its gasoline from the Torrance refinery. The annual demand for gasoline at the California distributor is 5.3 Million barrels. The cost of storing gasoline is approximately $29 per barrel (per year). The cost of placing an order to the Torrance refinery (including shipping) is $7300 per order. Orders will be received gradually instead of delivered all at once (hence EPQ). At what quantity will the total cost of procurement be the lowest? Round your answer to the nearest whole number. Do NOT include a comma. For example, answer like 103542 and NOT 103,542 Answer: 58845 Checkarrow_forwardGreen Grass Industries Limited (GGIL) has used a fixed-time period inventory system that involved taking a complete inventory count of all items each month. However, increasing labor costs, are forcing GGIL, to examine alternative ways to reduce the amount of labor involved in inventory stockrooms, yet without increasing other costs, such a shortage costs. Table 10 is a random sample of 20 GGIL's items. Table 10. Annual Usage by Value of a sample of GGIL's Inventory Item Number Annual Usage ($) Item Number Annual Usage ($) 1 10,600 11 2,750 2 14,000 12 1,400 3 4,000 13 3,200 4 16,000 14 2,500 5 8,100 15 110,000 1,800 16 14,800 7 84,000 17 9,500 8. 890 18 1,700 9 940 19 3,700 10 94,000 20 12,500 a) What would you recommend GGIL to do to cut back its labor cost? (Illustrate using an ABC plan). b) Item 18 is critical to continued operations at GGIL. i. How would you recommend it be classified? ii. Give the reason(s) for your answer.arrow_forwardA large bakery buys flour in 25-pound bags. The bakery uses an average of 1,215 bags a year. Preparing an order and receiving a shipment of flour involves a cost of $10 per order. Annual carrying costs are $75 per bag. a. Determine the economic order quantity. (Round your final answer to the nearest whole number.) Economic order quantity bags b. What is the average number of bags on hand? (Round your final answer to the nearest whole number.) Average number of bags c. How many orders per year will there be? (Round your final answer to the nearest whole number.) Number of orders per year d. Compute the total cost of ordering and carrying flour. (Round your final answer to the nearest whole number. Omit the "$" sign in your response.) Total cost $ e. If annual holding costs were to increase by $9 per bag, how much would that affect the minimum total annual cost? (Round your intermediate calculations to 2 decimal places and final…arrow_forward
- The 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_forwardA company operates for 50 weeks a year and uses a fixed quantity inventory system for one of its most important items. Below are the characteristics for the item: Weekly demand follows normal distribution: mean of 400 units and standard deviation of 100 units Order Cost = $40 per order Annual Holding cost = $2/unit/year Desired service level = 95% (z = 1.645) Lead Time = 4 weeks Economic Order Quantity (EOO) = 894 units Now suppose that the management is considering switching to a fixed time inventory system where the time between orders is 2 weeks. Everything else being the same as the information provided for the original problem, which system (Q or P system) is likely to have more safety stock? Please explain why.arrow_forwardChicago’s Treadway Tires Dealer must order tires fromits national warehouse. It costs $10,000 to place an orderand $400 to review the inventory level. Annual tire sales are N(20,000, 4,000,000). It costs $10 per year to hold a tire ininventory, and each order arrives two weeks after beingplaced (52 weeks 1 year). Assume that all shortages arebacklogged.a Estimate R and the number of orders per year thatshould be placed.b Using the answer in part (a), determine the optimal(R, S) inventory policy. Assume that the shortage cost is$100 per tire.arrow_forward
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