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Chapter 12, problems 12.

1
L. Houts Plastics is a large manufacturer of injection-molded plastics in North Carolina. An
investigation of the companys manufacturing facility in Charlotte yields the information
presented in the table below. How would the plant classify these items according to an ABC
classification system?
L. Houts Plastics Charlotte Inventory Levels
Item Code
#
Average Inventory (units)
Value ($/unit)
1289
400
3.75
2347
300
4
2349
120
2.5
2363
75
1.5
2394
60
1.75
2395
30
2
6782
20
1.15
7844
12
2.05
8210
8
1.8
8310
7
2
9111
6
3

Ans:

Item
Cod
e#
128
9
234
7
234
9
236
3
239
4
239
5
784
4
678
2
911

L. Houts Plastics Charlotte Inventory Levels


Percenta
ge of
Annual
Annual
Dollar
Average
Value
Dollar
Volume
Inventory (units) ($/unit) Volume ($) ($)
Class
400

3.75

1500

44.49%

300

1200

Class
35.59% A

120

2.5

300

8.90%

75

1.5

112.5

3.34%

60

1.75

105

3.11%

30

60

12

2.05

24.6

20
6

1.15
3

23
18

Class
1.78% B
Class
0.73% C
0.68%
0.53%

Total
Percentage
of Annual
Dollar
Volume ($)

80.08%

17.13%
2.79%

1
821
0
831
0

1.8

14.4

0.43%

14

0.42%

3371.5

100.00%

Total Dollar
Volume ($)

100.00%

Chapter 12, problems 12.5


William Bevilles computer training school, in Richmond, stocks workbooks with the
following characteristics:
Demand D = 19,500 units/year
Ordering cost S = $25/order
Holding cost H = $4/unit/year
a) Calculate the EOQ for the workbooks.
b) What are the annual holding costs for the workbooks?
c) What are the annual ordering costs?
Ans:
Data
Demand rate, D
Setup/order cost, S
Holding cost, H
Unit Price, P

19500
25
4

Results
Optimal Order Quantity,
Q*
Maximum Inventory
Average Inventory
Number of Orders

493.71
493.71
246.86
39.50

Holding cost
Setup cost

987.42
987.42

Unit costs
Total cost, Tc

$0.00
$1,974.84

a) Calculate the EOQ for the workbooks. = 493.71 ~ 494 units

EOQ = SQRT (( 2* Demand * Order Cost)/ Holding Cost)


EOQ = SQRT (( 2* 19500 * 25 )/4) = 493.71 Units ~ 494 Units
b) What are the annual holding costs for the workbooks?
Ans:
Annual holding costs for the workbooks = (Quantity of items) * (Holding Cost) / 2
= 494 * 4/2 = $ 987.42
c) What are the annual ordering costs?
Ans:
Annual ordering costs for the workbooks = (Demand * Order Cost)/ Q
Annual ordering costs for the workbooks = (19500 * 25) / 493.71 = $ 987.42

Chapter 12, problems 12.9


Southeastern Bell stocks a certain switch connector at its central warehouse for supplying
field service offices. The yearly demand for these connectors is 15,000 units. Southeastern
estimates its annual holding cost for this item to be $25 per unit. The cost to place and
process an order from the supplier is $75. The company operates 300 days per year, and the
lead time to receive an order from the supplier is 2 working days.
a) Find the economic order quantity.
b) Find the annual holding costs.
c) Find the annual ordering costs.
d) What is the reorder point?
Ans:
Data
Demand rate, D
Setup cost, S
Holding cost, H
Unit Price, P
Daily demand rate
Lead time in days
Results
Optimal Order Quantity, Q*

15000
75
25
50
2

300

Maximum Inventory
Average Inventory
Number of Setups
Holding cost
Setup cost

300
150
50
$3,750.00
$3,750.00

Unit costs
Total cost, Tc
Reorder Point

$0.00
$7,500.00
100

a) Find the economic order quantity.


Ans:
EOQ = SQRT (( 2* Demand * Order Cost)/ Holding Cost)
EOQ = SQRT ((2* 15000 * 75) /25) = 300 Units
b) Find the annual holding costs
Ans:
Annual holding costs for the workbooks = (Quantity of items) * (Holding Cost) / 2
Annual holding costs for the workbooks = (300 * 25) /2 = $3,750.00
c) Find the annual ordering costs.
Ans:
Annual ordering costs for the workbooks = (Demand * Order Cost)/ Q
Annual ordering costs for the workbooks = (15000 * 75) /300 = $3,750.00
d) What is the reorder point?
Ans:
Reorder point = (Demand Per Day ) * (Lead Time for new order in Days)
Reorder Point = (15000/300) * 2 = 50 * 2 = 100 units

Chapter 12, problems 12.15


M. Cotteleer Electronics supplies microcomputer circuitry to a company that incorporates
microprocessors into refrigerators and other home appliances. One of the components has an

annual demand of 250 units, and this is constant throughout the year. Carrying cost is
estimated to be $1 per unit per year, and the ordering cost is $20 per order.
a) To minimize cost, how many units should be ordered each time an order is placed?
b) How many orders per year are needed with the optimal policy?
c) What is the average inventory if costs are minimized?
d) Suppose that the ordering cost is not $20, and Cotteleer has been ordering 150 units each
time an order is placed. For this order policy (of Q = 150) to be optimal, determine what the
ordering cost would have to be.
Ans:
Data
Demand rate, D
Setup/order cost, S
Holding cost, H
Unit Price, P
Results
Optimal Order Quantity,
Q*
Maximum Inventory
Average Inventory
Number of Orders
Holding cost
Setup cost
Unit costs
Total cost, Tc

250
20
1

100
100
50
2.50
50
50
$0.00
$100.00

a) To minimize cost, how many units should be ordered each time an order is placed?
Ans:
EOQ = SQRT (( 2* Demand * Order Cost)/ Holding Cost)
EOQ = SQRT ((2* 250 * 20) /1) = 100 Units
b) How many orders per year are needed with the optimal policy?
Ans:
Number of Orders = Annual Demand / Q = 250 /100 = 2.50

c) What is the average inventory if costs are minimized?

Ans:
Average Inventory = 100/2 = 50

d) Suppose that the ordering cost is not $20, and Cotteleer has been ordering 150 units each
time an order is placed. For this order policy (of Q = 150) to be optimal, determine what
the ordering cost would have to be.
Ans:
EOQ = sqrt (( 2* Demand * Order Cost)/ Holding Cost)

150 = sqrt ((2* 250 * Order Cost)/1)

Order Cost = 150 * 150 /( 2* 250) = 75 *3/5 = 45 $