Assignment:2

Example: 1
• AAU is considering doing an ABC analysis of its
entire inventory but has decided to test the
technique on a small sample of 15 of its stock
keeping units. The annual usage and unit cost for
these items are shown in the table.
(a) Calculate the annual dollar volume for each item.
(b) List the items in descending order based on annual
dollar usage.
(c) Calculate the cumulative annual dollar volume.
(d) Group the items into classes.
 Example: 2
• Rainbow Paints, stocks paint in its warehouse and
sells it to the customers. The store stocks several
brands of paint; however, its biggest seller is
Sharman-Wilson Iron-coat paint. The company
wants to determine the optimal order size and
total inventory cost for Iron-coat paint given an
estimated annual demand of 10,000 gallons of
paint, an annual carrying cost of $0.75 per gallon,
and an ordering cost of $150 per order. They would
also like to know the number of orders that will be
made annually and the time between orders (i.e.,
the order cycle).
 Problem: 3
• Tacky Souvenirs sells lovely handmade
tablecloths at its island store. These tablecloths
cost Tacky $15 each. Customers want to buy the
tablecloths at a rate of 240 per week. The
company operates 52 weeks per year. Tacky,
the owner, estimates his ordering cost at $50.
Annual holding costs are 20 percent of the unit
cost. Lead time is 2 weeks. Using the
information given,
(a) Calculate the economic order quantity.
(b) Calculate the total annual costs using the EOQ.
(c) Determine the reorder point.
 Example: 4
• Discount Carpets manufactures Cascade carpet,
which it sells in its adjoining showroom store near
the interstate. Estimated annual demand is 20,000
yards of carpet with an annual carrying cost of
$2.75 per yard. The manufacturing facility
operates the same 360 days the store is open and
produces 400 yards of carpet per day. The
cost of setting up the manufacturing process for
a production run is $720. Determine the optimal
order size, total inventory cost and maximum
inventory level.
 Example: 5
• VGHC operates its own laboratory on-site.
The lab maintains an inventory of test kits for
a variety of procedures. VGHC uses 780 A1C
kits each year. Ordering costs are $15 and
holding costs are $3 per kit per year. The new
price list indicates that orders of fewer than
73 kits will cost $60 per kit, 73 through 144
kits will cost $56 per kit, and orders of more
than 144 kits will cost $53 per kit. Determine
the optimal order quantity and the total cost.
 Example: 6
• A manufacturing firm has been offered a
particular component part it uses according to the
following discount pricing schedule provided by
the supplier.

• The manufacturing company uses 700 of the

components annually, the annual carrying cost is
$14 per unit, and the ordering cost is $275.
Determine the amount the firm should order.