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Chapter 8

Problem Summary
Prob. #

Concepts Covered

8.1
8.2
8.3
8.4

EOQ Determining Q* and R


All Units Quantity Discount Model
Production Lot Size Model
Planned Shortage Model, Determining the
Percentage of Customers Placed on Backorder
Periodic Review Inventory Determining the
Order Quantity
Single Period Inventory Model
EOQ Determining Q* and R
Production Lot Size Model
Planned Shortage Model, Determining the
Percentage of Customers Placed on Backorder
All Units Quantity Discount Model
Periodic Review Inventory Determining the
Order Quantity
Single Period Inventory Model, Determining the
Expected Profit
EOQ Determining Q* and R
EOQ Rounding Off the Solution
EOQ Rounding Off the Solution
EOQ Comparing Total Costs If the Demand
Forecast Is In Error
Periodic Review Policy Determining the Order
Quantity
Periodic Review Policy Determining the Order
Quantity
Forecasting Demand, Determining Safety Stock
Based on Cycle Service Level, EOQ
All Units Quantity Discount
Production Lot Size Model
Production Lot Size Model, Examining the
Effect of Changes in Holding Cost
EOQ, Determining Safety Stock Based on a
Cycle Service Level , Determining the Profit of
Carrying an Item
All Units Quantity Discount
Single Period Inventory Model
Single Period Inventory Model

8.5
8.6
8.7
8.8
8.9
8.10
8.11
8.12
8.13
8.14
8.15
8.16
8.17
8.18
8.19
8.20
8.21
8.22
8.23
8.24
8.25
8.26
8.27
8.28
8.29

Planned Shortage Model


Periodic Review Policy Determining the Order
Quantity and Safety Stock for a Cycle Service
Level
All Units and Incremental Quantity Discount
Schedule, Calculating Discount Breaks

Chapter 8 - 1

Level of
Difficulty
1
2
2
3

Notes

3
2
1
2
3
2
3
3
1
1
1
2
2
2
4
3
2
3
4
3
1
3
2
3
4

Note that the goodwill cost is


negative

8.30
8.31
8.32
8.33
8.34
8.35

8.36
8.37
8.38
8.39
8.40
8.41
8.42
8.43
8.44
8.45
8.46
8.47
8.48
8.49

8.50

Production Lot Size Model


Planned Shortage Model Evaluating Different
Customer Satisfaction Plans, Determining the
Profit of Carrying an Item
Planned Shortage Model, Determining the Profit
of Carrying an Item
Single Period Inventory Model
Single Period Inventory Model Sensitivity
Analysis
Determining the Order Quantity for a Periodic
Review Model, All Units and Incremental
Quantity Discount Schedule, Calculating
Discount Breaks, Determining the Reorder Point
and Safety Stock for a Cycle Service Level,
Determining the Optimal Inventory Plan
Comparing the EOQ and Planned Shortage
Models
Make or Buy Problem Comparing the EOQ
and Production Lot Size Models
Incremental Discount Schedule
Single Period Inventory Model
Single Period Inventory Model

2
5

Planned Shortage Model


Production Lot Size Model -- Evaluating
Different Production Systems
Make or Buy Problem Comparing the EOQ
and Production Lot Size Models
Single Period Inventory Model

3
5

Single Period Inventory Model


EOQ, Evaluating the Effect of Changing the
Holding Cost
Comparing Annual Profits Using the EOQ
Model to Evaluate Two Different Purchase Plans
All Units Quantity Discount Schedul
All Units Quantity Discount Model

3
3

Forecasting Demand, Determining Lead Time


Demand and Safety Stock Based on Unit Service
Level, EOQ

Chapter 8 - 2

3
1
2
8

5
6
3
1
3

Note that the goodwill cost is


negative

6
1

Note that the salvage value is


negative

4
3
7

This problem requires students to


determine the quantity price breaks
from knowing the dollar price
breaks. They should use the
discounted price per unit in
calculating the break points.

Problem Solutions
8.1 See file Ch8.1.xls

Q* = 340

R = 25

Culton should order 340 bottles when the inventory reaches 25 bottles.

Chapter 8 - 3

8.2 See file Ch8.2.xls


Calculation of Optimal Inventory Policy Under All-Units Quantity Discounts

INPUTS
Annual Demand, D =
Per Unit Cost, C =
Annual Holding Cost Rate, H =
Annual Holding Cost Per Unit, Ch =

OPTIMAL
OUTPUTS

Values
104000.00
16.00
0.15
2.4000

Order quantity, Q* =
Cycle Time (in years), T =
# of Cycles Per Year, N =
Reorder Point, R =
Total Annual Cost, TC(Q*)
=

200.00

Order Cost, Co =
Lead Time (in years), L =
Safety Stock, SS =

Values
10001
0.096163462
10.3989601
1426680.81

DISCOUNTS
Breakpoin
t
1
1001
5001
10001

Level
0
1
2
3

Discount
Price
16.0000
15.2000
14.4000
13.6000

Q*
4163
4271
4389
4516

Modified
Q*
4163
4271
5001
10001

TC(Q*)
1673992.00
1590538.99
1507160.25
1426680.81

Price-Mart.com should order 10,001 pairs of jeans.


Hand calculations:
Level
0
1
2
3

Range

Unit Cost

Qi

Modified
Qi

Ordering
Cost

Holding
Cost

1 1000
1001 5000
5001 10000
10001 or more

16
15.2
14.4
13.6

4163
4271
4389
4516

4271
5001
10001

Non
200(104000)/4271
200(104000)/5001
200(104000)/10001

Purchasing
Cost

Total
Cost

Optimal
2.28(4271)/2
15.2(104000)
2.16(5001)/2
14.4(104000)
2.04(10001)/2 13.6(104000)

1590538
1507160
1426680

.15(15.2) = 2.28
Since 4163 falls above the range its unit cost applies it is non optimal

.15(14.4) = 2.16

Since 4271 falls inside the qualifying range it stays unmodified and the corresponding ordering, holding, and purchasing
cost need to be calculated.

Since 4389 falls to the left of the qualifying range it needs to be increased until at 5001it qualifies for the discounted cost of
$14.40. The same concept applies to Q3 = 4516.
Optimal policy: Order 10001 pairs because the minimum total cost of $1,426,680 is attained at Q = 10001.

Chapter 8 - 4

8.3

ADM should manufacture 2,000 units during each production run. There will be 3 production runs per
year.
Hand Calculations:
Annual demand = D = 12(500) = 6000
Annual production = P = 12(2000) = 24000
Set up cost = C0 = 2000
Unit cost = C = 40
Holding rate = H = .2

Production lot size = Q* =

N= D/Q = 6000/2000 = 3

Chapter 8 - 5

8.4 See file Ch8.4.xls

Playhouse World should order 14 playhouses. Approximately 14% of customers will have to wait for
delivery.
Hand Calculations:
This is the EOQ model with planned shortages.
Cs = 50*52 = 2600; Cb = 10; C = 3500; D = 2(12) = 24; Co = 1500; L = 1 month. Ch = 1500.

After the substitutions of the parameter values we have Q * = 13.68, and S* = 1.94.
The percentage of customers who will have to wait is 1.94/13.68*100 = 14.18 (this is so because the cycle
demand is 13.68 of which 1.94 units are not sold on time).
Note: The reorder point is R = LD S = (1month)(monthly demand) shortage = 1(2) 1.94 = .06

Chapter 8 - 6

8.5 See file Ch8.5.xls

SportWorld.com should order 145 dozen golf balls.

Chapter 8 - 7

8.6 See file Ch8.6.xls

Rauls Bakery should bake 76 loaves of bread each day.

Chapter 8 - 8

8.7 See file Ch8.7.xls

a. Food Town should order 3,448 boxes of pasta.


b. The order should be placed when the inventory level reaches 420 boxes.
Hand Calculations
D = 320(52) = 16640; C0 = 30; H = .14; C = .60; L = 1 week; SS = 100
a. Order size:

b. Re-order point

R = DL + SS= 16640(1/52) + 100 = 420

Chapter 8 - 9

See file Ch8.8.xls


Determination of Inventory Policy for Production Lot Size Model

INPUTS
Annual Demand, D =
Per Unit Cost, C =
Annual Holding Cost Rate, H =
Annual Holding Cost Per Unit, Ch =
Set Up Cost, Co =
Annual Production Rate, P =
Lead Time (in years), L =
Safety Stock, SS =

Values
54750.00
2.25
0.20
0.4500
90.00
146000.00

OPTIMAL
OUTPUTS
Order Quantity, Q* =
Cycle Time (in years), T =
# of Cycles Per Year, N =
Reorder Point, R =
Total Annual Variable Cost, TV(Q*) =
Total Annual Cost, TC(Q*) =

Mother Smiths should bake 5925 pies per production lot.


D = 150(365) = 54750; P = 50(8)(365) = 146000; C = 2.25; H = .2; Co =90

Chapter 8 - 10

Values
5919.46

8.9 See file Ch8.9.xls

a. Appliance Alley should order 33 washing machines


b. No one will have to wait for their washing machines.

Chapter 8 - 11

8.10 See file Ch8.10.xls

Zeiglers Lumber Supply should order 1,000,000 board feet of 2 by 4s.

Chapter 8 - 12

8.11 See file Ch8.11.xls

Bank Drugs should order 1713 tablets.

Chapter 8 - 13

8.12 See file Ch8.12.xls

a. Furrs should order 277 calendars.


b. Furrs will have an expected profit of approximately $1,178.

Chapter 8 - 14

8.13 See file Ch8.13.xls

Hand Calculations:
D = 7(365) = 2555; Ch = .2(.8) = .16; Co = 25. SS = 15
a. Buyright should order

Stick razors and use a reorder point of R =

LD+SS = (5/365)2555+15 = 50 razors.


b. Days between orders = Q*/D years = Q*/D*365 days = .3497*365 = 128 calendar days
c. Total Annual Cost (including holding cost of safety stock) = CoD/Q*+Ch(Q*/2)+CD+ChSS =
25(2555/894)+.16(894/2)+.8(2555)+.16(15) = $2,189.37, and the Projected Net Annual Profit =
2,555*($1.49) - $2,189.37 = $1,617.58.
This solution assumes demand occurs at a constant rate and will continue on at this rate forever.

Chapter 8 - 15

8.14 See file Ch8.14.xls

a. Buyright should order Q* = 864 Stick razors (6 lots of 144) and use a reorder point of R = 55
razors.
b. Days between orders = .3382*365 = 123 calendar days
c. Total Annual Cost (including holding cost of safety stock) = $2,190.25 and the Projected Net
Annual Profit = 2,555*($1.49) - $2,190.25 = $1,616.70.
This solution can also be obtained by adding a cell for NL, number of lots, in G13 and a constraint in
cell G14, =$H$5 - $G$14*144. Solver changes are Changing Cell becomes G13 with constraints G13
= Integer and G14 = 0.

Chapter 8 - 16

8.15 See file Ch8.15.xls

a. The order quantity is Q * = 2,200 boxes or 22 increments when the inventory level reaches R = 425
boxes.
b. The number of days between orders = .1303*365 = 47.6 calendar days
c. Total Annual Cost (including holding cost of safety stock) = $16,536.25 and the Projected Net
Annual Profit = 16,900*($1.29) - $16,536.25 = $5,264.75.

Chapter 8 - 17

8.16 See files Ch8.16a.xls and Ch8.16b.xls


a.

a. The optimal order quantity is Q* = 2,400 boxes.

Chapter 8 - 18

8.16b See file Ch8.16b.xls

b. $19,041.71 - $19,040.45 = $1.26

Chapter 8 - 19

8.17 See file Ch8.17.xls

The optimal order quantity is Q* = 155

Chapter 8 - 20

8.18 See file Ch8.18.xls

The optimal order quantity is Q* = 135

Chapter 8 - 21

8.19 See file Ch8.19.xls

D = 52*21 = 1092. From the sample the weekly mean demand based on the 8 weeks moving average
approach = 21. So for a 2-week lead time we have L = 21*2 = 42 and L = 5.45 (given).
a. The optimal order quantity is Q* = 177 (rounded) based on the EOQ model. A 96% cycle service
level corresponds to a z value of approximately 1.75. Hence, the reorder point equals + z.96*L = 42
+ 1.75*5.45 = 51.54 = 52 (rounded up).
b. Days between orders equals Q*/D = .1618 years = .1618*365 = 59 calendar days
c. Total annual inventory cost (including safety stock holding cost) = CoD/Q* + ChQ*/2 + ChSS + CD =
$9,946.93 (note that the safety stock = SS = z.96*L = 1.75(5.45) = 9.5375)
Comment: Suppose management decides to set the re-order point at R = 50 units. What is the new
cycle service level? From the reorder point formula we have 50 = L+zSLL = 42+zSL(5.45) which
yields zSL = (50 42)/5.45 = 1.47. The service level is found from the normal table or from
=normdist(1.47) = .929. The safety stock for this case is 50 42 = 8.
Chapter 8 - 22

8.20 See file Ch8.20.xls

a. The optimal order quantity is Q* = 400 and the reorder point is R = 63


b. Number of days between orders = .3205*365 = 117 calendar days
c. Total annual cost (including holding cost of safety stock) = $21,143.69
We assume demand occurs a constant rate and will continue on at this rate forever, safety stock was
ordered at the discount price and the only cost associated with the safety stock is the holding cost.

Chapter 8 - 23

8.21 See file Ch8.21.xls

Hand Calculations
D = 25000(52) = 1,300,000; P = 10000(6)(52) = 3,120,000; Co = 325; Ch = .55
a. The optimal production batch is obtained from using the formula
Total annual ordering and holding cost =

= 51,320 bottles.
$16,465.24

b. Length of a production run = (Q*/P per hour) +2 = 51,320/1000 + 2 = 53.3 hours


Note that hourly production = 10,000/10hours = 1,000

c. Number of days between the start time of successive production runs = T = Q */D = .0395 years = .
0395*365 = 14.4 calendar days.

Chapter 8 - 24

We assumed that demand occurs at a constant rate and production will not be interrupted by work
stoppages.

Chapter 8 - 25

8.22 See files Ch8.22a.xls and Ch8.22b.xls


a.

a. The optimal production batch size is Q* = 485,917 The length of a production run = 485,917/
(2*60*60) + 50/60 = 68.3 hours
b. Total annual inventory cost = $38,895.54
c. Number of days between the start time of successive production runs = .0231*365 = 8.43 calendar
days.

Chapter 8 - 26

8.22 d. See file Ch8.22d.xls

d. The optimal production batch size would increase to Q * = 532,295 The length of a production run
would equal 532,295/(2*60*60) +50/60 = 74.76 hours

Chapter 8 - 27

8.23 See Ch8.23.xls


D = 52*60 = 3120
Lead Time Demand ~ N( = 70, = 15)

a. The optimal order quantity is Q* = 77 with a reorder point of 22. The number of inventory cycles
per year = 3120/77 = 40.519. Hence, Click would like the cycle service level to be 1 - 1/40.519 =
97.52%. The z value corresponding to this service level is approximately z = 1.96. Hence, the reorder
point = + z* = 70 + 1.96*15 = 99.4 = 99 (See the Cycle Service Level worksheet) and the safety
stock is z* = 1.96*15 = 29. However, because this reorder point exceeds the order quantity of 77,
orders must be placed one inventory cycle early when the inventory level reaches 99 - 77 = 22.
b. There are 52*6 = 312 working days in a year. Hence, the number of days between orders = .
0248*312 = 7.74 working days.
c. Total annual cost (including holding cost of safety stock) = $1,632,364.75
d. Projected annual profit = 3120*($649.99) - $1,632,364.75 = $395,604.05
Chapter 8 - 28

8.24 See file Ch8.24.xls

a. The optimal order quantity becomes Q* = 1000 with a reorder point of 77. The number of inventory
cycles per year = 3120/1000 = 3.12. Hence, Click would like the cycle service level to be 1 - 1/3.12 =
67.95%. The z value corresponding to this service level is approximately z = .465. Therefore the
reorder point = + z* = 70 + .465*15 = 76.975 = 77 and the safety stock is z* = .465*15 = 7.
b. There are 52*6 = 312 working days in a year. Hence, the number of days between orders = .
3205*312 = 100 working days.
c. Total annual cost (including holding cost of safety stock) = $1,519,849.03.
d. Projected annual profit = 3120*($649.99) - $1,519,849.03 = $508,119.79

Chapter 8 - 29

8.25 See file Ch8.25.xls

Masks-R-Us should order Q* = 1,047. The expected profit would equal $1,534.83.

Chapter 8 - 30

8.26 See file Ch8.26.xls

a. Skip Gunther should produce 1817 plates (note goodwill cost is -$40).
b. Expected profit = $96,364.24
c. We assumed the company pays a royalty on plates produced even if they are destroyed.

Chapter 8 - 31

8.27 See file Ch8.27.xls

a. The optimal order quantity is Q* = 81 with a reorder point = 23.27 = 23 .


b. The number of days between orders = .1299*365 = 47.4 calendar days.
c. The percentage of customers who will be placed on backorder = 1/81 = .0012 = 1%.
d. Total annual cost = $11,962.82 Projected annual profit = 624*($32.95) - $11,962.82 = $8,597.98.

Chapter 8 - 32

8.28 See file Ch8.28.xls


For this problem one needs to consider the probability of a stock out over the entire review period
(three weeks). The mean demand is 600 and the standard deviation of demand is 51.96. This results in
a reorder point of 707 units.

Chapter 8 - 33

8.28

continued

a. The optimal order quantity is Q* = 677.


b. The safety stock = 107 units.

Chapter 8 - 34

8.29 See file Ch8.29.xls


a.

With an all-units discount policy Q* = 9,000

Chapter 8 - 35

8.29b.

b. With an incremental discount policy Q* = 14,190


c. The reorder point is 5769 pounds.
We assumed that demand is constant and will continue on at the same rate forever.

Chapter 8 - 36

8.30 See files Ch8.30french.xls and Ch8.30amaretto.xls

For French Roast Q* = 750 (Since they will not roast more than a 10-day supply of the coffee)
Note, finding this solution requires the Solver constraint, H5 <= 750.

Chapter 8 - 37

8.30 continued

For Amaretto Cream Q* = 200 (since the store will not roast more than a 10-day supply of the coffee)
Note, finding this solution requires the Solver constraint, H5 <= 750.

Chapter 8 - 38

8.31 See files Ch8.31a.xls and Ch8.31b.xls


Plan I

Chapter 8 - 39

8.31 continued
Plan II

a. Pete's should adopt Plan I and give one pound of coffee free to backordered customers as the annual
inventory costs are slightly lower under this plan.
b. Under Plan I -- Q* = 44 and the reorder point is 17.
c. The expected annual profit = 180*($189) - $18,338.71 = $15,681.29

Chapter 8 - 40

8.32 See file Ch8.32.xls

a. The optimal order quantity is Q* = 111 and the reorder point is R = 39. .
b. The number of weeks between orders = .0285*52 = 1.48.
c. The percentage of customers who will be placed on backorder = 0%.
d. Annual profit on cash registers = 3900*($80) - $7,065.51 = $304,934.49
Note, profit can also be expressed as net sales less total costs as depicted in cell E16.

Chapter 8 - 41

8.33 See file Ch8.33.xls

Clothesline should order 9591 scarves. We assume Clothesline will only get one order delivered
during the season.

Chapter 8 - 42

8.34 See files Ch8.34a.xls, Ch8.34b.xls, Ch8.34c.xls, Ch8.34d.xls

a. If g = $.10, Q* = 201.

Chapter 8 - 43

8.34 b.

b. If g = $.50, Q* = 214.

Chapter 8 - 44

8.34 c.

c. If g = $1.00, Q* = 222.

Chapter 8 - 45

8.34 d.

d. If g = $5.00, Q* = 234

Chapter 8 - 46

8.35 See files Ch8.35c.xls and Ch8.35g.xls


a. Lead time demand ~ N( = 60, = 12). Since Circle 7 wants a 99% cycle service level, z = 2.33 and
the safety stock = z* = 2.33*12 = 28. Hence, Q* = (T+L)*D + SS - SH = (1)*60 +29 - 22 = 66.
b. Total annual cost = annual holding cost + cost of the cola = (30+28)*($1.0625) + 60*52*4.25 =
$13,322.75.
c.

c. Circle 7 should order Q* = 900 cases.


d. The reorder point is 88.
e. Total annual cost = $11,788.08.
f. Yes, the annual costs decrease by approximately $1,500 if Circle 7 takes advantage of the discount
schedule.
Chapter 8 - 47

8.35 g. See file Ch8.35g.xls

g. In this case, with a safety stock of 28, the optimal order quantity is Q * = 250 - 28 = 222, the
reorder point equals 60 + 28 = 88, and the total annual cost = $12,479.94.

Chapter 8 - 48

8.36 See file Ch8.36.xls


a.

a. The optimal order quantity is Q* = 46 R = 2. Profit = $22,332.07.

Chapter 8 - 49

8.36 b.

b. The optimal order quantity is Q* = 46 with a reorder point R = 17. Profit = $22,484.28.
c. Yes, allowing for backorders increases profit by approximately $150 per year.

Chapter 8 - 50

8.37 See file Ch8.37.xls

a. The optimal order quantity is Q * = 11,051 and the reorder point is R = 9,632. Cycle Time = .
0789*365 = 29 calendar days. Total annual cost (including holding cost of safety stock) =
$1,773,527.99.

Chapter 8 - 51

8.37 b.

The optimal batch size is Q* = 44,143. The length of a production run = 44,143/2,000 = 22 working
days or 26 calendar days. Cycle Time = .3153*365 = 115 calendar days. Total annual cost (including
machine lease cost) = $1,719,144.58 + $5,000 = $1,724,144.58.
b.

c. Company should begin in-house production. It will save about $50,000 per year.

Chapter 8 - 52

8.38 See file Ch8.38.xls

a. The optimal order quantity is Q* = 37,427


b. Total annual cost = $1,703,822.51

Chapter 8 - 53

8.39 See file Ch8.39.xls

Johansens should purchase Q* = 83 waffle cones daily.

Chapter 8 - 54

8.40 See File ch8.40.xls

Franks should order 5 mowers at the temporary discount.

Chapter 8 - 55

8.41 See file Ch8.41.xls

a. United Parcel Delivery should order Q* = 13 engines when the stock on hand reaches R = 5 engines.
b. Total annual cost = $143,615.38

Chapter 8 - 56

8.42 See file Ch8.42II.xls


If the firm uses machine I since P = 2,750*365 = 1,003,750, this is the maximum amount the company
could sell and it would not have any inventory. Hence, the annual profit to the firm using machine I is
$.20*1,003,750 - $40,000 - $4,000 = $156,750 (note that this assumes the $4,000 setup cost is charged
once during the year and not amortized over more than one year).
If the firm uses Machine II we have the following output

Because the frankfurters cannot be kept for more than three weeks, the production quantity must be
reduced from 370,032 down to 98,742. With this reduction in the production quantity, the profit is
lower using machine II than with machine I.
Note: To determine the maximum number of frankfurters that can be sold over the three weeks we
solve the following equation for x: 69,230.77 = (1 - 1,200,000/4,015,000)x, giving a value of x =
98,742.
Three week demand is (3/52)*(1,200,000) = 69,230.77.
During production,
(1,200,000/4,015,000)% of frankfurters satisfy the demand, the remainder (1-1,200,000/4,015,000) go
to inventory. The maximum inventory from a production level, x, cannot exceed the three week
demand.
Chapter 8 - 57

8.43 See file Ch8.43.xls

a. If Mercury purchases the laces the optimal order quantity is Q * = 164,702 and the reorder point R =
20,029. The number of days between orders = .3514*365 = 128 calendar days. The total annual cost
(including safety stock holding cost) = $17,064.18.

Chapter 8 - 58

8.43 b.

b. If Mercury produces the laces in-house the optimal production quantity is Q * = 445,730.
Production run time = 445,731/(2,000,000/(260*10)) + 4 = 579.45 + 4 = 583.45 hours and the number
of days between the start of successive production runs = .9707*365 = 354.3 calendar days. Total
annual cost (including machine lease cost) = $16,342.17 + $1,800 = $18,142.17.
c. Mercury should continue to purchase laces from Tiright as the cost would be over a $1,000 less per
year.

Chapter 8 - 59

8.44

The troop should purchase Q* = 204 trees.

Chapter 8 - 60

8.45 See file Ch8.45.xls

Business Daily should place Q* = 40 newspapers in the kiosk.

Chapter 8 - 61

8.46 See files Ch8.46a.xls and Ch8.46c.xls

a.

Ibex should order Q* = 2,471 chairs when the inventory level reaches R = 1,187 units. The
number of days between orders = .0752*365 = 27 calendar days.

b. Total annual costs (including holding cost of safety stock) = $324,142.53 + 500*($1.56) =
$324,922.53

Chapter 8 - 62

8.46 c. See file Ch8.46c.xls

c. The order quantity would decrease to Q* = 2,230. An order would be placed when the inventory
level reaches R = 1,329 units.

Chapter 8 - 63

8.47 See file Ch8.47.xls

The cost of the new supplier is $330,942.92. Hence, it is not worth switching manufacturers.

Chapter 8 - 64

8.48 See file Ch8.48.xls

a.

The optimal order quantity is Q* = 5,000.

b. The reorder point is R = 500 + 50 = 550.


c. The number of days between orders is .3846*365 = 140 calendar days.
d. Total annual costs (including holding cost of safety stock) = $24,789.20.

Chapter 8 - 65

8.49 See file Ch8.49.xls

a.

The optimal order quantity is Q* = 170,941 pounds at a cost of $70,000 based on a price of
$0.4095 per pound.

b.

R = L*D + SS - Q* = 180,385 - 170,941 = 9,444 and it will occur in the previous inventory cycle.

c.

Total annual cost (including holding cost of safety stock) = $1,507,793.56.

Chapter 8 - 66

8.50 See file Ch8.50.xls

a.

The optimal order quantity is Q* = 158.

b. The number of days between orders = .0362*365 = 13 calendar days.

Chapter 8 - 67

8.50 c.

c. Since the sample mean = 84, we would estimate the mean lead time demand as 3*84 = 252. Since
the sample variance = 69.5556, we would estimate the variance of the lead time demand as
3*69.5556 = 208.6668. Hence, the standard deviation of the lead time demand = 208.6668 =
14.45.

Chapter 8 - 68

8.50 c. continued

c. The reorder point is R = 286 which implies a safety stock = 34 units.


d. Total Inventory Cost = $197,769.52.

Chapter 8 - 69