Question

1) David and Beth Sheba run a health food store. Their top selling item is called Heavenly Kelp. The annual demand for this is 810 units, and demand is constant throughout the year. The cost of placing an order is $20, while the holding cost per unit per year is $4. Determine the economic order quantity a) 80 b) 90 c) 360 d ) 180 e) None of these (Question 2 and 3) Ivonne Callen sells beauty supplies. Her annual demand for a particular skin lotion is 1,000 units. The cost of placing an order is $20, while the holding cost per unit per year is 10 percent of the cost. This item currently costs $10 if the order quantity is less than 300. For orders of 300 units or more, the cost falls to $9.80 with 2% discount. 2) To minimize total cost, how many units should Ivonne order each time she places an order? a) 63 b) 200 c) 301 d) 300 e) None of these 3) What is the minimum total cost? a) $10200 b) $10013.67 c) $10023 d) $8000 e) None of these (Question 4 to 8) Everett Mann's Dream Store sells waterbeds and supplies. The best-selling bed in the store has an annual demand of 400 units. The ordering cost is $40, while the holding cost is $5 per unit per year. There are 250 working days per year, and the lead-time is 5 days. 4) To minimize total cost, how many units should be ordered each time an order is placed? a) 80 b) 6400 c) 10 d) 100 e) None of these 5) What would be the optimal number of orders each year? a) 10 b) 12c)6 d) 5 e) 8 6) What is the total ordering cost? a) $400 b) 5480 C) $200 d) $100 e) None of these 7) What is the total inventory cost? a) S480 b) $400 c) $100 d) $200 e) None of these 8) What is the reorder point (ROP)? a) 9 b) 10 c) 8 d) 12 e) None of these

question 2

Answer 1

Annual demand, D = 1000 units

Ordering cost, S = $ 20

Considering unit price, C = $ 10

Holding cost, H = 10*0.1 = $ 1 (since, holding cost is 10% of cost)

EOQ = SQRT(2*DS/H) = SQRT(2*1000*20/1) = 200

Since, this is less than 300, therefore, applicable price is $ 10 same as applied before, else if it were more than 300, then we would have calculated using (H = 9.8*0.1)

Total annual cost of EOQ policy = Ordering cost + Holding cost + Product cost = (D/Q)*S+(Q/2)*H+D*P

= (1000/200)*20+(200/2)*1+1000*10

= $ 10,200

For Q=300, P = $ 9.8 , H = 9.8*0.1 = $ 0.98

Total annual cost of Q=300 policy = Ordering cost + Holding cost + Product cost = (D/Q)*S+(Q/2)*H+D*P

= (1000/300)*20+(300/2)*0.98+1000*9.8

= $ 10013.667

Total cost of 300 units order policy is lower.

Therefore, Ivonne should order (2) 300 (OPTION D) units each time she places an order.
That way, her total cost would come down to (3) $ 10013.667 (OPTION B)