Michigan State Figurine Inc. (MSF) sells crystal figurines to Spartan fans. MSF
ID: 359893 • Letter: M
Question
Michigan State Figurine Inc. (MSF) sells crystal figurines to Spartan fans. MSF buys the figurines from a manufacturer at $10 per unit. They send orders electronically to the manufacturer, costing $20 per order and they experience a lead time of 8 days for each order to arrive from the manufacturer. Their inventory carrying cost is 20%. The average daily demand of the figurines is 20 units per day with a standard deviation of 3 units. They are open 1. At the EOQ, about how many orders (round up) will MSF place each year? 15.8 or 18 2. Refer to the graph in question #3. Which of the following represents the EOQ you computed in for business 250 days a year #1? 9 A b. B c. C d. D f. F g. None of the above 3. Refer to the graph below. Which of the following represents the average daily demand for the figurines? 9 A b. C C. D d. E f. None of the above 4. What is the safety stock level for the figurines at 95 percent service level (round up)? 5. Over how many working days will each order (EOQ) last (round up)?Explanation / Answer
We have following information
Annual demand D= 20 unit per day * 250 working days = 5,000 unit per year
Ordering cost S = $20 per order
Holding or carrying cost H =20% of the unit purchase cost= $10 * 20% = $2 per unit per annum
Formula of economic order quantity (EOQ)
EOQ = sqrt (2* D*S/H) = sqrt(2 * 5,000 * 20 /2) = 316.23 units or 316 (nearest whole number)
1. Number of orders in a year = Annual demand / economic order quantity
= 5000/ 316 = 15.8 or 16 (nearest whole number as order cannot be in fraction)
2. In the graph, economic order quantity is the intersection point of total ordering cost and total holding cost but no such point is there in the graph of question #3,
Therefore correct answer is none of the above.
3. In the graph given in question average daily demand is represented by B as it constant at 20 units with standard deviation of 3 units.
Therefore correct answer is option b. B
4. Safety stock = z * st. dev. Of demand * sqrt (L)
Where,
z value for the desired Service Level at 95%= 1.65
Standard deviation of daily demand = 3 units
L is the lead time = 8 days
Therefore,
Safety stock = 1.65 * 3 * 8 = 14 units
5. The each order (EOQ) will last number of working days = EOQ / average daily demand
= 316 / 20 = 15.8 days or 16 working days (nearest whole number)