Concept explainers
(a)
Interpretation:
The optimal lot size the supermarket should order and the time between the placement of the order for the products.
Concept Introduction:
The economic order quantity, often called EOQ refers to the order quantity that helps the organization in minimizing the ordering and holding cost of the organization’s business.
(b)
Interpretation:
The reorder point based on the on-hand inventory if the procurement lead time is two months.
Concept Introduction:
The re-order level refers to the inventory level at which an organization would place a new order or begin a new manufacturing run.
(c)
Interpretation:
The annual profit (exclusive of overhead and labor costs) for the product if it sells at the price of 99 cents.
Concept Introduction:
Inventory management is nothing but the process of ordering, storing, and utilizing the organization’s inventory.
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Production and Operations Analysis, Seventh Edition
- Assume the demand for a companys drug Wozac during the current year is 50,000, and assume demand will grow at 5% a year. If the company builds a plant that can produce x units of Wozac per year, it will cost 16x. Each unit of Wozac is sold for 3. Each unit of Wozac produced incurs a variable production cost of 0.20. It costs 0.40 per year to operate a unit of capacity. Determine how large a Wozac plant the company should build to maximize its expected profit over the next 10 years.arrow_forwardBerry Computer is considering moving some of its operations overseas in order to reduce labor costs. In the United States, its main circuit board costs Berry $75 per unit to produce, while overseas it costs only $65 to produce. Holding costs are based on a 20 percent annual interest rate, and the demand has been a fairly steady 200 units per week. Assume that setup costs are $200 both locally and overseas. Production lead times are one month locally and six months overseas.a. Determine the average annual costs of production, holding, and setup at each location, assuming that an optimal solution is employed in each case. Based on these results only, which location is preferable?b. Determine the value of the pipeline inventory in each case. (The pipeline inventory is the inventory on order.) Does comparison of the pipeline inventories alter the conclusion reached in part (a)?c. Might considerations other than cost favor local over overseas production?arrow_forwardMike’s Garage, a local automotive service and repair shop, uses oil filters at a fairly steady rate of 2,400 per year. Mike estimates that the cost of his time to make and process an order is about $50. It takes one month for the supplier to deliver the oil filters to the garage, and each one costs Mike $5. Mike uses an annual interest rate of 25 percent to compute his holding cost.a. Determine the optimal number of oil filters that Mike should purchase, and the optimal time between placement of orders.b. Determine the level of on-hand inventory at the time a reorder should be placed.c. Assuming that Mike uses an optimal inventory control policy for oil filters, what is the annual cost of holding and order setup for this item?arrow_forward
- A specialty coffeehouse sells Colombian coffee at a fairly steady rate of 280 poundsannually. The beans are purchased from a local supplier for $2.40 per pound. The coffeehouse estimates that it costs $45 in paperwork and labor to place an order for thecoffee, and holding costs are based on a 20 percent annual interest rate.a. Determine the optimal order quantity for Colombian coffee.arrow_forwardA local outdoor vegetable stand has exactly 1,000 square feet of space to display three vegetables: tomatoes, lettuce, and zucchini. The appropriate data for these items are given in the following table. (given) The setup cost for replenishment of the vegetables is $100 in each case, and the space consumed by each vegetable is proportional to its costs, with tomatoes requiring 0.5 square foot per pound. The annual interest rate used for computing holding costs is 25 percent. What are the optimal quantities that should be purchased of these three vegetables?arrow_forwardConsider that you work at Kroger Grocery store, and that you've been tasked with creating an ABC inventory classification for 6 items. The 6 items, as well as their profit per case and number of cases sold per week, are as follows:Ribeye Steak - $135 in profit per case, 3 cases sold per weekLobster Tail - $245 in profit per case, 3 cases sold per weekPasta - $23 in profit per case, 12 cases sold per weekSalt - $3 in profit per case, 2 cases sold per weekNapkins - $12 in profit per case, 2 cases sold per weekTomato Sauce - $23 in profit per case, 11 cases sold per weekUsing total weekly profits, please classify each products into A, B, or C categories. Which items form the boundary of the class A and B items in your classification, and why? Which items form the boundary of the class B and C items in your classification, and why?arrow_forward
- Skinner's fish market buys fresh boston bluefish daiily for $4.20 per pound and sells it for $5.50 per pound. at the end of each business day any remaining bluefish is sold to a producer of cat food for $1.60 per pound. Daily demand can be approximated by a uniform distribution between 200 and 320 pounds. What is the optimal order qunatity.arrow_forwardABC firm uses roughly 3,400 pounds of chemical dye a year. Currently, the firm purchases 300 pounds per order and pays P120.00 per pound. The supplier has just announced that orders of 1,000 pounds or more will be filled at a price of P80.00 per pound. The manufacturing firm incurs a cost of P4,000.00 each time it submits an order and assigns an annual holding cost of 17% of the purchase price per pound. a. Determine the order size that will minimize the total cost.b. If the supplier offered the discount at 1,500 pounds instead of 1,000 pounds, what order size would minimize total cost?arrow_forwardThe maintenance department of a large hospital uses about 816 cases of liquid cleanserannually. Ordering costs are $12, carrying costs are $4 per case a year, and the new priceschedule indicates that orders of less than 50 cases will cost $20 per case, 50 to 79 caseswill cost $18 per case, 80 to 99 cases will cost $17 per case, and larger orders will cost $16per case. Determine the optimal order quantity and the total cost.arrow_forward
- A manager receives a forecast for next year. Demand is projected to be 600 units for the first half of the year and 920 units for the second half. The monthly holding cost is $2 per unit, and it costs an estimated $55 to process an order. a.Assuming that monthly demand will be level during each of the six-month periods covered by the forecast (e.g., 100 per month for each of the first six months), determine an order size that will minimize the sum of ordering and carrying costs for each of the six-month periods. (Round your answers to the nearest whole number.) Period Order Size 1 – 6 months?_____units 7 – 12 months?_____units b.If the vendor is willing to offer a discount of $10 per order for ordering in multiples of 50 units (e.g., 50, 100, 150), would you advise the manager to take advantage of the offer in either period? If so, what order size would you recommend? (Round intermediate calculations to 2 decimal places.) Period Order Size 1 – 6 months?____ units 7 – 12 months?____…arrow_forwardA local outdoor vegetable stand has exactly 1,000 square feet of space to displaythree vegetables: tomatoes, lettuce, and zucchini. The appropriate data for theseitems are given in the following table.ItemTomatoes Lettuce ZucchiniAnnual demand 850 1,280 630(in pounds)Cost per pound $0.29 $0.45 $0.25The setup cost for replenishment of the vegetables is $100 in each case, and thespace consumed by each vegetable is proportional to its costs, with tomatoes requiring 0.5 square foot per pound. The annual interest rate used for computingholding costs is 25 percent. What are the optimal quantities that should be purchased of these three vegetables?arrow_forwardThe campus store at a large Midwestern university sells writing tablets to students, faculty, and staff. They sell more tablets near exam time. During a typical 10-week quarter,the pattern of sales is 2,280, 1,120, 360, 3,340, 1,230, 860, 675, 1,350, 4,600, 1,210.Thepads cost the store $1.20 each, and holding costs are based on a 30 percent annual interest rate. The cost of employee time, paperwork, and handling amounts to $30 per order.Assume 50 weeks per year.b. The bookstore manager has decided that it would be more economical if thedemand were the same each week. In order to even out the demand he limits weeklysales (to the annoyance of his clientele). Hence, assume that the total demand forthe 10-week quarter is still the same, but the sales are constant from week to week.Determine the optimal order policy in this case and compare the total holding andordering cost over the 10 weeks to the answer you obtained in part (a). (You may assume continuous time for the purposes of your…arrow_forward
- Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,