Please solve the following problems related to Inventory Management 1. A produce
ID: 352623 • Letter: P
Question
Please solve the following problems related to Inventory Management
1. A produce distributor uses 2500 packing crates per year. The
manager has assigned an annual carrying cost of $5 per crate.
Ordering cost is $20.
(a) How much is the order quantity based on EOQ model?
(b) How much is the total cost using EOQ model?
Hint: Please read Example Problems 1-3 in Chapter 13 on page 583-584.
2) A lab orders a number of chemicals from the same supplier every 30
days. The lead time is six days. The assistant manager of the lab
must determine how much of one of these chemicals to order. Check of
stock reviewed that 12 25-milliliter (ml) jars are on hand. Daily
usage of the chemical is appropriately normal with a mean of 20 ml
per day and a standard deviation of 1.8 ml per day. The desired
service level for this chemical is 95%.
a) How many jars of the chemical should he ordered?
b) What is the average amount of safety stock of the chemical?
Hint: Please read Example Problems 10-11 in Chapter 13 on page 575.
Please type your answer and the steps of computation in a Word file.
(Please DO NOT just write the answer. Show the steps that you solve
the problems
Explanation / Answer
1) Annual demand (D) = 2500 crates
Ordering cost (S) = $20
Holding cost (H) = $5
a) Economic order quantity (Q) = sqrt of (2DS /H)
= sqrt of [(2 x 2500 x 20)/5]
= sqrt of 20000
= 141.42 or rounded to 141 crates
b) Annual Ordering cost = (D/Q) S = (2500/141)20 = $354.61
Annual holding cost = (Q/2)H = (141/2)5 = $352.5
Total cost = Ordering cost + Holding cost
= $354.61 + $352.5
= $707.11