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Solution - Problem Questions

The document contains three problems about calculating order quantities, inventory levels, and reorder points. Problem 1 asks to calculate the economic order quantity and time between orders for laptops. Problem 2 asks to calculate the economic order quantity, average inventory, number of orders per year, and total ordering and carrying costs for flour. Problem 3 asks to calculate the reorder point for spatulas given daily demand, performance cycle length, and safety stock level.

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Jae Mi
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11 views2 pages

Solution - Problem Questions

The document contains three problems about calculating order quantities, inventory levels, and reorder points. Problem 1 asks to calculate the economic order quantity and time between orders for laptops. Problem 2 asks to calculate the economic order quantity, average inventory, number of orders per year, and total ordering and carrying costs for flour. Problem 3 asks to calculate the reorder point for spatulas given daily demand, performance cycle length, and safety stock level.

Uploaded by

Jae Mi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Problem questions (Solutions)

1. One of the hot selling items of Beruit Holdings is DEL laptop. The monthly demand for
laptops is 500 units and the holding cost is $2 per laptop per year. If each order incurs a cost
of $10 then calculate:
- Number of laptops Beirut Holdings should order at a time?
- Time between two consecutive orders
Note: Round the EOQ to an integer value, but round any other values to a maximum of two decimals.

Solution:

Annual demand = D = 500*12 = 6000 units


Holding cost = H = $2
Ordering cost = S = $10

a) Number of laptops to order = Economic Order Quantity = EOQ

EOQ = Sq. root (2DS/H) = sq. root (2*6000*10/2)


= 245 units of laptops

b) To calculate time between two consecutive orders, we will first calculate the number
of orders:

Number of orders = Annual demand/EOQ

= 6000/245
= 24.48 orders
Hence, 25 orders are made in a year. Therefore, time between two consecutive
orders is:

Time between two consecutive orders = 365 days/24.48


= 14.9 days

2. A bakery buys flour in 25-poud bags. The bakery uses 1,215 bags a year. Ordering cost is
$10 per order. Annual carrying cost is $75 per bag.
A) Determine economic order quantity.
B) What is the average number of bags on hand.
C) How many orders per year there will be?
D) Compute the total cost of ordering and carrying flour.

Solution:

Determine the EOQ:


Q0 =
√ 2 DS
H
=
√
2 (1 , 215 )10
75
=18
bags
b. Determine the average inventory:

Q/2 = 18/2 = 9 bags

c. Determine the number of orders per year:


D 1 , 215 bags
= =67 .5
Q 18 bags/order orders

d. Determine the total cost of ordering and carrying flour:


TC = Carrying cost + Ordering cost

TC= ( Q2 ) H +( DQ ) S=( 182 ) 75+( 1,215


18 )
10=$ 675+ $ 675=$ 1,350

3. Mr. Stan Busfield, distribution center manager of Hogan Kitchenwares, must determine
when to resupply his stock of spatulas. The DC experiences a daily demand of 500 spatulas.
The average length of the performance cycle for spatulas is 21 days. Mr. Busfield requires
that 750 spatulas be retained as safety stock to deal with demand uncertainty. What is the
reorder point for spatulas?

Solution

Determine the the reorder point for spatulas

R = D × T + SS

= 500 × 21 + 750

= 11,250 spatulas

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