Question
Solve using Excel. Consider a basic economic order quantity (EOQ) model with the following characteristics:
Item cost: $15 Item selling price: $20 Monthly demand: 500 units (constant) Annual holding cost: 9% of purchase cost Cost per order: $18 Order lead time: 5 working days Firm's work year: 300 days (50 weeks @ 6 days per week) Safety stock: 15% of monthly demand For this problem, determine the values of: 1 Q* the optimal order quantity and reorder point. a) 500 and 175 b) 400 and 100 c) 400 and 175 d) 400 and 75 e) none of the above 2 M, the maximum quantity in inventory. a) 575 b) 475 c) 500 d) 675 e) none of the above 3 T, the cycle time. a) 20 workdays b) 15 workdays c) 32 workdays d) 25 workdays e) none of the above 4 Total annual inventory cost. a) $90,540.00 b) $540.00 c) $675.00 d) $90,641.25 e) none of the above 5 What is the annual ordering cost? a) $18.00 b) $270.0 c) $1,080.00 d) $216.00 e) none of the above 6 Suppose the vendor demands purchases in multiples of 500 only. What is the increase in total annual inventory cost that this causes? a) $13.50 b) $0.0 c) $337.50 d) $67.50 e) none of the above 7 What is the average lead time demand? a) 100 units b) 16 units c) 8 units d) 75 units e) none of the above 8 If the standard deviation of the lead time demand is 10 units, what is the cycle service level with the given safety a) 100% b) 95% c) 99% d) 75% e) none of the above 9 If the standard deviation of the lead time demand is 10 units, what would be the safety stock if cycle service level is 99%? a) 75 b) 175 c) 123 d) 100 e) none of the above 10 Assuming cycle service level of over 99% is not advisable, what is the annual cost of carrying un-necessary safety stock? a) $70.20 b) $1,350.00 c) $414.00 d) $1,800.00 e) none of the above
Explanation / Answer
[1] Monthly demand : 500 (constant)
Safety Stock : 75
[D] 400 and 75
[2] 500 + 75 = 575 [A]
[3] Order lead time : 5 Working Days
Cycle Time = 20 Workdays [A]
[4]
TC = PD + HQ/2 + SD/Q '¦
where
•TC is the total annual inventory cost—to be calculated.
•P is the price per unit paid.
•D is the total number of units purchased in a year
•H is the holding cost per unit per year—assume .
•Q is the quantity ordered each time an order is placed
•S is the fixed cost of each orde.
[D] = $90641.25