FIXED – ORDER QUANTITY MODEL
The
1. Given the following data:
Annual demand, D = 1,000 units
Ordering cost, S = P 200 per order
Holding cost, H = P 50 per unit per year
Lead time, L = 5 days
Cost per unit, C = P 500
a. Find the EOQ.
b. Find the reorder point.
c. What would be your ordering policy for this
item?
d. Find the total annual inventory cost.
2. Each year, Y Company purchases 20,000 units
of an item that costs P 640 per unit. The cost of
placing an order is P 480, and the cost to hold
the item in inventory for one year is P 150.
a. Determine the EOQ.
b. What is the average inventory level,
assuming that the minimum inventory level
is zero?
c. Determine the total annual ordering cost
and the total annual holding cost for the
item if the EOQ is used.
3. A fastfood outlet uses 120 six-ounce plastic
cups each day and plans to be open 360 days a
year. The cups cost P 9 per dozen; Ordering
costs are P 200 per order; and carrying costs
are 50% of the item unit cost (since space is a
premium).
a. Find the EOQ, if delivery is instantaneous.
b. Currently, cups are ordered every 30 days.
1) Compare the current ordering quantity
vs. the optimal order quantity.
2) Compare the current vs. the optimal
total annual inventory cost. Which
ordering policy is more advantageous in
terms of cost savings. By how much?
4. A toy manufacturer uses approximately 32,000
silicon chips annually. The chips are used at a
steady rate during the 240 days the plant
operates. Annual holding cost is P27 per chip
and ordering cost is P1,080. Lead time = 1
week.
a. Find the EOQ.
b. Find the reorder point.
c. What would be your ordering policy for this
item?
d. Find the total annual cost of ordering and
carrying silicon chips.
5. A large bakery buys sugar in 50-kg bags.
bakery uses an average of 1,344 bags a year.
Preparing an order and receiving a shipment of
sugar involves a cost of P 135. Annual carrying
costs are P 630 per bag. The bakery operates
280 days per year. Lead time = 2 weeks.
a. Determine the economic order quantity.
b. What is the average number of bags on
hand?
c. When should the bakery order for more
sugar?
d. How many times per year will the bakery
order for sugar?
FIXED-TIME PERIOD MODEL
1. A drug store orders its antibiotics every two
weeks when a salesperson visits from one of
the pharmaceutical companies. Amoxycillin is
one of its most prescribed antibiotics, with an
average daily demand of 1,500 capsules. The
standard deviation of daily demand was derived
by examining prescriptions filled over the last
three months and was found to be 500
capsules. It takes nine days for the order to
arrive. The drug store manager has set a
service level of 99 per cent. The salesperson
has just arrived, and there are currently 25,000
capsules in stock.
a) How much additional stock must be carried
to minimize the risk of stockout?
b) How many capsules of Amoxycillin should
be ordered if lot size per order is 100
capsules?
2. The weekly demand for a product is 770 units.
The standard deviation of daily demand is 10
units. The firm reviews its inventory every 28
days. Each order for the product arrives 9 days
after placement. At the time of review, there are
10 units backorder. If 95 percent of all demand
is to be satisfied from items in stock:
a) How many units should be the safety stock?
b) What’s the product’s inventory status?
c) How many units should be ordered for this
period?