Production and Operations Analysis, Seventh Edition
7th Edition
ISBN: 9781478623069
Author: Steven Nahmias, Tava Lennon Olsen
Publisher: Waveland Press, Inc.
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Chapter 4.5, Problem 13P
Summary Introduction
To determine:
Error in calculating average cost when set up cost was $15.
Introduction:
Holding cost is the cost incurred when goods are kept in warehouses without sale.
Setup cost is the fixed cost which is incurred for production process.
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Assume that Triksi Co. makes footballs and is trying to determine the quantity of leather it should order every time an order is placed. The relevant information is as follows:
I. Over the course of a year 12,000 square meters of leather will be needed,
II. The cost of storing 1 square meter of leather is $3, and
III. The cost of placing an order is $450
Show Computations and Explanations.
A. What is the EOQ? (Formula: 1,111)
The Warren W. Fisher Computer Corporation purchases 8,000transistors each year as components in minicomputers. The unit
cost of each transistor is $10, and the cost of carrying one tran-sistor in inventory for a year is $3. Ordering cost is $30 per order.
What are (a) the optimal order quantity, (b) the expectednumber of orders placed each year, and (c) the expected timebetween orders? Assume that Fisher operates on a 200-dayworking year.
The Great North Supermarket stocks Munchkin Cookies. Demand for Munchkins is 5000 boxes per year (365 days). It costs the store $60 per order of Munchkins, and it costs $0.70 per box per year to keep the cookies in stock. Once an order for Munchkins is placed, it takes four days to reveive the order from a food distributor.
Determine the following:
a. Optimal order size (EOQ)
b.Minimum total annual inventoy cost
c. Reorder point (R)
d. Number of orders
e. Time between orders
Chapter 4 Solutions
Production and Operations Analysis, Seventh Edition
Ch. 4.4 - Prob. 1PCh. 4.4 - Prob. 2PCh. 4.4 - Prob. 3PCh. 4.4 - Prob. 4PCh. 4.4 - Prob. 5PCh. 4.4 - Prob. 6PCh. 4.4 - Prob. 7PCh. 4.4 - Prob. 8PCh. 4.4 - Prob. 9PCh. 4.5 - Prob. 10P
Ch. 4.5 - Prob. 11PCh. 4.5 - Prob. 12PCh. 4.5 - Prob. 13PCh. 4.5 - Prob. 14PCh. 4.5 - Prob. 15PCh. 4.5 - Prob. 16PCh. 4.6 - Prob. 17PCh. 4.6 - Prob. 18PCh. 4.6 - Prob. 19PCh. 4.6 - Prob. 20PCh. 4.7 - Prob. 21PCh. 4.7 - Prob. 22PCh. 4.7 - Prob. 23PCh. 4.7 - Prob. 24PCh. 4.7 - Prob. 25PCh. 4.8 - Prob. 26PCh. 4.8 - Prob. 27PCh. 4.8 - Prob. 28PCh. 4.9 - Prob. 29PCh. 4.9 - Prob. 30PCh. 4 - Prob. 31APCh. 4 - Prob. 32APCh. 4 - Prob. 33APCh. 4 - Prob. 34APCh. 4 - Prob. 35APCh. 4 - Prob. 36APCh. 4 - Prob. 37APCh. 4 - Prob. 38APCh. 4 - Prob. 39APCh. 4 - Prob. 40APCh. 4 - Prob. 41APCh. 4 - Prob. 42APCh. 4 - Prob. 43APCh. 4 - Prob. 44APCh. 4 - Prob. 45AP
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- In the Walton Bookstore example, suppose thatWalton receives no money for the first 50 excesscalendars returned but receives $2.50 for every calendar after the first 50 returned. Does this change theoptimal order quantity?arrow_forwardA company has an annual demand of 2500 units. The cost to place an order to replenish inventory is SR18.75 per order, and annual inventory holding cost per unit is SR1.5. On average, delivery of an order takes 3 working days (Lead time). Assume the store is open 250 days per year. What is the optimal order size? What is the optimal number of orders per year? What is the optimal number of days between orders? What is the Reorder Point (ROP)? What is the Reorder Point (ROP) with 2 days safety stock.arrow_forwardConsider the EOQ model. At the optimal order quantity, the annual holding cost is $10,000. What is the annual ordering cost? Group of answer choices $0 $2,500 $10,000 Cannot be determined $5,000arrow_forward
- Cynthia Knott's oyster bar buys fresh Louisiana oysters for $5 per pound and sells them for $9 per pound. Any oysters not sold that day are sold to her cousin, who has a nearby grocery store, for $3 per pound. Cynthia believes that demand follows the normal distribution, with a mean of 100 pounds and a standard deviation of 14 pounds. How many pounds should she order each day? Refer to the standard normal table LOADING... for z-values. Part 2 Cynthia should order enter your response here pounds of oysters each day (round your response to one decimal place).arrow_forward____ is the ordering model which calculates the timing of the inventory order:Select one:a. ABC modelb. Fixed order quantity modelc. EOQ model d. Reorder point modelarrow_forwardAn online retailer sells 1,500 t-shirts per year. The cost of the t-shirts to the store is $3.00 and the cost of placing an order is $15 per order. It cost $0.60 per t-shirt per year for the retailer to hold the t-shirts. The retailer sells the t-shirts for $9.99. Determine (a) the optimal order quantity, (b) the order frequency (c) the annual holding and setup cost.arrow_forward
- . Suppose inventory is managed using the order-up-to model. Which of the following actions will certainly lead to a higher order-up-to level? In all cases, assume thecharacteristics of the demand process do not change. I. Increase in the target in-stock probability (for the same lead time)II. Increase in the lead time (for the same in-stock probability)a. I onlyb. II onlyc. I and IId. None of the abovearrow_forwardA firm incurs $30 in fixed order costs per order and a holding cost per unit of $1per year. Annual demand is 10,000 units. The firm is required to order an integer multiple of500 units. What order quantity should the firm use to minimize ordering and holding costs?arrow_forward15. A law firm always orders 60 cases of paper from their office supply company. They incur an annual holding cost of $15 per case and have an ordering cost of $30 each time they place an order. If their annual demand is 480 cases, how much could they save annually by switching to their economic order quantity? Group of answer choices $33 $15 $28 $25arrow_forward
- Rocky Mountain Tire Center sells 20,000 go-cart tires per year. The ordering cost for each order is $40, and the holding cost is 20% of the purchase price of the tires per year.The purchase price is $20 per tire if fewer than 500 tires are ordered, $18 per tire if 500 or more-but fewer than 1,000- tires a re ordered, and $17 per tire if I ,000 or more tires areordered.a) How many tires should Rocky Mountain order each time it places an order?b) What is the total cost of this policy?arrow_forwardThe materials manager of a tire manfacturer must predict periodically place order for a key chemical one of the raw materials used in manufacturing uses the chemical at a rate of 300lbs each week and the lead time of delivery is 4 days. Assume that the manufacturing operation runs 5 days a week. At what point should the chemical be reorderedd a. when 1200lbs are remaining b. where 0lbs are remaining c. where 375lbs are remaining d. when 240lbs are remarrow_forwardAt Dot Com, a large retailer of popular books, demand is constant at 32,000 books per year. The cost of placing an order to replenish stock is $10, and the annual cost of holding is $4 per book. Stock is received 5 working days after an order has been placed. No backordering is allowed. Assume 300 working days a year.a. What is Dot Com’s optimal order quantity?b. What is the optimal number of orders per year?c. What is the optimal interval (in working days) between orders?d. What is demand during the lead time?e. What is the reorder point?f. What is the inventory position immediately after an order has been placed?arrow_forward
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