BEN'S MUFFLER REPAIR

Ben's Muffler Repair advertises that it is able to replace a car muffler on the same day a customer brings a car into the shop. If
cannot keep this promise, he pays the customer 100 dollars. Ben has found that LN-70 mufflers, the optimal reorder quantity i
LN-70 mufflers 10 times a year. As LN-70 mufflers have to be ordered from a manufacturer located a considerable distance aw
orders is 30 working days, a period of time in which Ben on the average sells 30 LN-70 mufflers. During the past 10 years, 100
were 10 occasions when Ben sold 32 LN-70s, 5 occasions when he sold 35, and only 1 when he sold 36 during the 30-day orde
other 84 occasions, he sold 30 or fewer. It costs Ben 18 dollars a year to hold one LN-70 in safety stock.

Given:
Cost of being out of stock 100
Optimal reorder quantity 30
No. of orders per year 10
Average usage 1
Lead time 30 days
Carrying cost 18

Use during reorder period Prob.

30 0.84
32 0.1
35 0.05
36 0.01

COST OF BEING OUT OF STOCK COST

Expected Total Annual cost

ROP Safety Stock No. Short of being out of ROP
Annual Cost
sotck

30 2 200 30
5 250 510 32
6 60 35
32 2 3 150 36
190
4 40
35 5 1 10 10
36 6 0 0 0

MORGAN FURNITURE

Morgan Furniture requires 576,000 board feet of wood per year. The cost per delivery is 112 pesos and cost of the wood is 0.7
is estimated that the carrying cost is 18% of the average inventory.
Given:
Annual Demand 576,000 board feet
Ordering cost 112.00 pesos 288,000
Cost per unit 0.70 pesos ###
Carrying cost 18% of the average inventory 0.126 <-- carrying cost
Annual Value 403,200.00 pesos

No. of orders per year 1 2 3 4 5

Value per order 403,200.00 201600 134400 100800 80640
Average inventory 201,600 100,800 67,200 50,400 40,320
Carrying cost 36,288 18,144 12,096 9,072 7,258
Ordering cost 112 224 336 448 560
Total costs/year 36,400 18,368 12,432 9,520 7,818

Optimal number of orders per year 18

Optimal number of units per order 32000 32000
Optimal Value per order 22400
Minimum inventory cost 4032

BURNIGHT DRUGSTORE

Demand for STICK disposable razors at Burnight Drugstore averages seven packages per day. The razors cost Burnight 0.80 dol
for 1.49 dollars. Burnight uses a 20% annual holding cost rate and estimates the cost to place an order for additional razors at
open 365 days a year and desires a safety stock of 15 packages. The lead time for delivery is five days

Given: Solution:
Demand per day 7 packages Demand per year
Working days per year 365 days ROP
Cost per package 0.8 dollars Annual Value
Selling price per package 1.49 dollars Optimal Value per order
Annual holding cost 20% Optimal No. of units per order
Ordering cost 25 dollars Number of orders per year
Safety stock desired 15 packages Total annual cost
Lead time 5 days

ABC Co.

ABC Co. is a manufacturing company that sells beverages. It is estimated that the annual demand for their tropical fruit soda d
cases. The cost of the tropical fruit soda drink is 3 dollars per case. The ABC Co. accountant has determined that the ordering a
product are 20 dollars and 25% respectively. ABC Co. operates for 250 days in a year and it takes 5 days for ordered items to a
replenishement.

Given: Solution:
Annual Demand 3600 cases Annual Value
Cost per case 3 dollars Optimal No. of cases per order
Ordering cost 20 dollars Optimal value per order
Carrying cost 25%
Working days per year 250 days
Lead time 5 days

Economic order Qty. 438.178046

Annual Holding cost 164.3167673

Annual Ordering cost 164.3167673
Total Annual Cost 328.6335345

Maximum Inventory Level 438.178046

Average inventory level 219.089023
Reorder point 72

No. of orders/year 8.215838363

Cycle time 30.42903097
 How much is the total expected annual cost of being
Answer: $ 510
ngs a car into the shop. If for any reason Ben
ptimal reorder quantity is 30 mufflers; he orders
considerable distance away, lead time for his How much is the total annual cost (expected annual c
g the past 10 years, 100 orders were placed. There units (30 units + 6 safety stocks)? Note: Round your
6 during the 30-day order period. On each of the Answer: $ 108
k.
2 How much is the total expected annual cost of being
Round your final answer to the nearest whole numb
Answer: $ 190

7 How much is the total annual cost (expected annual c

units (30 units + 2 safety stocks)? Note: Round your
Answer: $ 226

How much is the total expected annual cost of being

Round your final answer to the nearest whole numb
Answer: $ 0

6 How much is the total annual cost (expected annual c

units (30 units + 0 safety stock)? Note: Round your fi
Answer: $ 510

9 How much is the total annual cost (expected annual c

units (30 units + 5 safety stock)? Note: Round your fi
COST OF SAFETY STOCK Answer: $ 100

Safety Cost of being Annual Total Cost

Carrying
Stock out of stock per year
Cost

0 510 0 510 10 How much is the total expected annual cost of being
2 190 36 226 Round your final answer to the nearest whole numb
5 10 90 100 Answer: $ 10
6 0 108 108

Determine the optimal number of board feet per ord

d cost of the wood is 0.70 pesos per board feet. It comma or space)
Answer: 32000
 3 Determine the minimum inventory cost for the Morg
and do not use comma or space)
Answer: 4,032

<-- carrying cost 1 Determine the optimal value per order. (Round your
space)
Answer: 22400
6 7 8 9 10 11 12 13 14
67200 57600 50400 44800 40320 36654.545 33600 31015.385 28800
33,600 28,800 25,200 22,400 20,160 18,327 16,800 15,508 14,400
6,048 5,184 4,536 4,032 3,629 3,299 3,024 2,791 2,592
672 784 896 1,008 1,120 1,232 1,344 1,456 1,568
6,720 5,968 5,432 5,040 4,749 4,531 4,368 4,247 4,160

Determine the reorder point (lead time demand + saf

Answer: 50
rs cost Burnight 0.80 dollar per package and sell
r for additional razors at 25 dollars. Burnight is
5 Using the EOQ table, determine the minimum invent
to the nearest whole number)
Answer: 143
2555 packages
35 packages
2044
alue per order 714.84264003
o. of units per order 893.55330003
f orders per year 2.8593705601
142.96852801

Determine the optimal number cases per order (Roun

their tropical fruit soda drink product is 3600 Answer: 438.17805
mined that the ordering and carrying costs for this
ys for ordered items to arrive for inventory
Using MS excel, determine the minimum inventory co
do not use comma or space)
Answer: $ 328.63353

10800 4 Using the EOQ formula, determine the optimal value

o. of cases per order 438.178046 do not use comma or space)
alue per order 1314.534138 Answer: 1314.53

8 Determine the optimal number of orders per year (ro

Answer: 8
expected annual cost of being out of stock if the ROP is at 30 units (30 units + 0 safety stock)? 4 points
per year

annual cost (expected annual cost of being out of stock + annual carrying cost) if the ROP is at 36 4 points
y stocks)? Note: Round your final answer to the nearest whole number
per year

expected annual cost of being out of stock if the ROP is at 32 units (30 units + 2 safety stocks)? Note: 4 points
er to the nearest whole number
per year

annual cost (expected annual cost of being out of stock + annual carrying cost) if the ROP is at 32 4 points
y stocks)? Note: Round your final answer to the nearest whole number
per year

expected annual cost of being out of stock if the ROP is at 36 units (30 units + 6 safety stocks)? Note: 4 points
er to the nearest whole number
per year

annual cost (expected annual cost of being out of stock + annual carrying cost) if the ROP is at 30 4 points
y stock)? Note: Round your final answer to the nearest whole number
per year

annual cost (expected annual cost of being out of stock + annual carrying cost) if the ROP is at 35 4 points
y stock)? Note: Round your final answer to the nearest whole number
per year

expected annual cost of being out of stock if the ROP is at 35 units (30 units + 5 safety stocks)? Note: 4 points
er to the nearest whole number
per year

number of board feet per order. (Round your answer to the nearest whole number and do not use 3 points
 m inventory cost for the Morgan inventory policy (Round your answer to the nearest whole number 3 points
or space)

value per order. (Round your answer to the nearest whole number and do not use comma or 3 points

15 16 17 18 19
26880 25200 23717.647 22400 21221.05
13,440 12,600 11,859 11,200 10,611
2,419 2,268 2,135 2,016 1,910
1,680 1,792 1,904 2,016 2,128
4,099 4,060 4,039 4,032 4,038

point (lead time demand + safety stock) (Round your answer to the nearest whole number) 3 points

etermine the minimum inventory cost (carrying cost + ordering cost) (round your answer 3 points
umber)

number cases per order (Round your answer to the nearest whole number) 3 points

mine the minimum inventory cost in the EOQ table (Round your answer to two decimal places and 3 points
pace)

, determine the optimal value per order. (round your answer to two decimal places and 3 points
pace)
number of orders per year (round your answer to the nearest whole number) 3 points