1

Chapter 13: Inventory Management

3.) Solution
Given,
Demand D= 4,860 bags/yr.
Setup cost S = $10
Holding cost H = $75 then,
2DS 2(4,860 )10
a. Economic Order Quantity Q    36 bags
H 75
b. Average number= Q/2 = 36/2 = 18 bags
D 4,860 bags
c. Number of orders per year=   135 orders
Q 36 bags / orders
D
d. total cost, TC  Q / 2 * H  *S
Q
36 4,860
 (75)  (10 )  1,350  1,350  $2,700
2 36
2(4,860 )(11)
e. Using S = $11, Q =  37 .757
75
37 .757 4,860
TC  (75)  (11)  1,415 .89  1,415 .90  $2,831 .79
2 37 .757
The total annual cost is Increase by [$2,831.79 – $2,700] = $131.79

6. Solution
Total Annual demand = 800*12 per year = 9600 per year
Purchase cost = $10 per crate per year
H = holding cost = (0.35)*Purchase Cost = $3.5 per crate per year
S = setup cost = $28 per order
As per EOQ model,
2DS 2(9600)28
EOQ = Q    392 bags
H 3.5
D
TC = TC  Q / 2 * H  * S  (392/2)*3.5 + (9600/392)*28 = $1372
Q
As per Non-EOQ model,
Average inventory per month = 800/2 = 400
Total Cost = 400*3.5 + 12*28 = 1400 + 336 = $1736
 2

The firm will save annually ($1736-$1372) $ 364 in ordering and carrying cost by using the
EOQ

9.) Solution
Given,
Production capacity p = 5,000 hotdogs/day
Usage or supply u = 250 hotdogs/day
Factor operate, n= 300 days per year
Setup cost, S = $66
Holding cost, H = $.45/hotdog per yr.
Annual demand D= 250*300= 75,000 hotdogs/yr.
2 DS p 2(75,000)66 5,000
a .Optimum output, Q0    4,812.27 or equal to 4,812
H p u .45 4,750
b. Number of runs per year = D/Q0 = 75,000/4,812 = 15.59, or about 16 runs/yr.
c. Run length: Qo/p = 4,812/5,000 = .96 days, or approximately 1 day

20. Solution
Given lead time demand, D= 600 pounds
Standard deviation of lead time σlt= 52 pounds
Safety stock = 4%
Service level = 96%
At 96 % level, Z value = 1.75
a.) Safety stock= Z-value * standard deviation = 1.75*52 = 91 pounds.
b.) ROP = Average demand during lead time + safety stock = 600+91= 691 pounds.
c.) with no safety stock the risk is 50%
 3

Chapter Seventeen: Project Management

2. Solution
Given data are:
Estimated time (hrs) Activity (Abbreviation)
0.8 Install software (Inst)
0.4 Outline the paper (Out)
0.2 Submit paper to instruct ( Sub)
0.6 Chose a topic (Ch)
0.5 Use grammar checking and correction (Ck)
3.0 Write the paper using word processing (Write)
2.0 Shop for a new computer (Sh)
1.0 Select and purchase computer
2.0 Library research in choosing topic (Lib)

1. Arranging the activities in logical sequence.

Chose topic…….Library…..Outline…...
Write paper…Grammar check….submit paper
Shop………Select………..Install…..

2. AOA Diagram

Lib

Out
Ch 0.6 2.0
0.4 Sub
Write Ck
End
Start 0.2
3.0 0.5
Inst
Sh
0.8
2.0
Sel
1.0
 4

3. AON Diagram.

CH Lib Out

W Ck Sub End
ST

Sh
Sel Ins
t

3.

Possible path Estimated time

Ch-Lib-Out-W-Ck-Sub (0.6+2+0.4+3+0.5+0.2)= 6.7 hrs

Sh-Sel-Ins-W-Ck-Sub (2+1+0.8+3+0.5+0.2)= 7.5 hrs

The critical path is: Shop-Select-Install-Write-Grammar-Submit and estimated time is 7.5

hrs.

4.) There are three parallel activities that need to be done simultaneously. If there is delay either
one of the activity it delays the project. So the Parallel paths, probabilistic activity durations may
be main reason for the project to take longer than the expected duration.
 5

7. Solution:

Given data:
Time in days

Immediate predecessor Optimistic Most likely Pessimistic

Activity
- 5 6 7
A
- 8 8 11
B
A 6 8 11
C
- 9 12 15
D
C 5 6 9
E
D 5 6 7
F
F 2 3 7
G
B 4 4 5
H
H 5 7 8
I
E,G,I
END

a) Presdence diagram

C 5
E
2

A
F G End
D 3 6 8
Start
1
B I

H
4 7
 6

The possible paths and expected duration are given as

For path A-C-E, Expected duration = 6 +8.17+6.33=20.5 days
For path D-F-G, Expected duration = 12 +6+3.5=21.5 days
For path B-H-I, Expected duration = 8.5 +4.17+6.83=19.5 days

The critical path is : D-F-G and expected duration of project is 21.5 days

Calculation of standard deviation:

𝟐
Activity 𝐭 𝐨 + 𝟒𝐭 𝐦 + 𝐭 𝐩 (𝐭 𝐩 − 𝐭 𝐨 )
𝐭𝐞 = 𝛔𝟐 = [ ]
𝟔 𝟔

A 6 4/36
B 8.5 9/36
C 8.17 25/36
D 12 36/36
E 6.33 16/36
F 6 4/36
G 3.5 25/36
H 4.17 1/36
I 6.83 9/36

σpath = √∑(variances of activities on path)

4 25 16 45
For path A-C-E, σ = √36 + 36 + 36 = √36 = 1.118

36 4 25 65
For path D-F-G, σ = √36 + 36 + 36 = √36 = 1.344

9 1 9 19
For path B-H-I, σ = √36 + 36 + 36 = √36 = 0.726
 7

Then, z value of specified value can be calculated as:

𝐒𝐩𝐞𝐜𝐢𝐟𝐢𝐞𝐝 𝐭𝐢𝐦𝐞 − 𝐩𝐚𝐭𝐡 𝐦𝐞𝐚𝐧
𝐳=
𝐏𝐚𝐭𝐡 𝐬𝐭𝐚𝐧𝐝𝐚𝐫𝐝 𝐝𝐞𝐯𝐢𝐚𝐭𝐢𝐨𝐧
a.) For 24 days or less
24−20.5
For path A-C-E, z = = 3.13. Since z >3, from rule of right thumb the
1.118
probability is 1
24−21.5
For path D-F-G, z = = 1.86 From Z- tables, the probability is 0.9686
1.344
24−19.5
For path B-H-I, Z = = 6.19 . Since z >3, the probability is 1
0.7265
As By considering the time that critical path activities are completed, other activities already will

be completed as they have less time to complete. The path that has the longest expected duration

is the critical path. As D-F-G is the critical path. Thus

The probability that can be finished within 24 days or less = 0.9686

b.)For 21 days or less

21−20.5
For path A-C-E, z = = 0.447. From Z- tables, the probability is 0.6736
1.118
21−21.5
For path D-F-G, z = = −0.3721. From Z-tables, the probability is 0.3557
1.344
21−19.5
For path B-H-I, z = = 2.065. From Z tables, the probability is 0.9808
0.7265
As By considering the time that critical path activities are completed, other activities already will

be completed as they have less time to complete. The path that has the longest expected duration

is the critical path. As D-F-G is the critical path. Thus

The probability that can be finished within 21 days or less =0.3557

 8

10. Solution
Given data:
Activity Estimated time (weeks) Standard deviation (wks)
1-2 4 0.70
2-4 6 0.90
1-3 3 0.62
3-4 9 1.90

Precedence diagram:
2

1 4

The possible paths are:

Possible path Estimated time Standard deviation
1-2-4 10 √0.72 + 0.92 = 1.14
1-3-4 12 √0.622 + 1.902 = 2

Critical path: 1-3-4 which estimated time is 12 weeks

a.) The given project need to be completed within 11 weeks but the expected estimated time to
finish the project is 12 weeks. The critical path is 1-3-4 which estimated time is 12 weeks. Also
from the calculation of probability, the probability to be late project one week is 0.5. The
probability of completion of work in 11 weeks is only 26.43%.
So as a manager I need to concerned and must lengthen the time of project.
 9

b.) According to the question there will be fine of $5,000 per week if the project is late. The
schedule time is 11 weeks but estimated time is 12 weeks. We need to find the probability at
least there will fine of $5,000. That mean the project must be late 1 weeks for this condition.
Therefore, we need to find the probability at more than 12 weeks
Specified time−path mean
As we know z=
Path standard deviation
12−10
Now for path 1-2-4: z= = 1.75, at that point from the Z- table (Given at Appendix
1.14
B in book) the probability is 0.9599
12−12
For path 1-3-4: z = = 0, at that point from Z- table the probability is 0.5
2
As By considering the time that critical path activities are completed, other activities already will

be completed as they have less time to complete. The path that has the longest expected duration

is the critical path. As 1-3-4 is the critical path. Thus

The probability of at least $5,000 fine is (1-0.5) = 0.5