Henry Crouch's law office has traditionally ordered ink refills 55 units at a time. The firm estimates that carrying cost is 40% of the $12 unit cost and that annual demand is about 240 units per year. The assumptions of the basic EOQ model are thought to apply. For what value of ordering cost would its action be optimal? a) For what value of ordering cost would its action be optimal? Its action would be optimal given an ordering cost of $30.25 per order (round your response to two decimal places). b) If the true ordering cost turns out to be much less than your answer to part (a), what is the impact on the firm's ordering policy? OA. The order quantity should be increased. B. The order quantity should be decreased. O C. The order quantity should not be changed.

Henry Crouch's law office has traditionally ordered ink refills 55 units at a time. The firm estimates that carrying cost is 40% of the $12 unit cost and that annual demand is about 240 units per year. The assumptions of the basic EOQ model are thought to apply. For what value of ordering cost would its action be optimal? a) For what value of ordering cost would its action be optimal? Its action would be optimal given an ordering cost of $30.25 per order (round your response to two decimal places). b) If the true ordering cost turns out to be much less than your answer to part (a), what is the impact on the firm's ordering policy? OA. The order quantity should be increased. B. The order quantity should be decreased. O C. The order quantity should not be changed.

Purchasing and Supply Chain Management

6th Edition

ISBN:9781285869681

Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Chapter16: Lean Supply Chain Management

Section: Chapter Questions

Problem 10DQ: The chapter presented various approaches for the control of inventory investment. Discuss three...

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1. Calculate Economic Order Quantity (EOQ), number of orders, annual ordering costs, annual carrying costs and total inventory costs from the following: Annual consumption: 6000 units ; Cost of placing one Order: RO 60 Carrying cost per unit: RO 22. Find out the EOQ, Annual ordering cost and annual holding cost from the following information. The demand is 19500 units per year, holding cost is RO 4 per unit for a year and ordering cost is RO 25 order. 3. Find out the ordering cost from the following information, Annual demand is 240 units, holding cost RO 4 per unit for a year and EOQ is 60 units.
A local distributor for Hankook tires Company expects to sell 12,600 R14 radial tires nest year. The estimated cost of keeping a R14 tire per annum is ȼ126 and ordering cost is ȼ70. a) What is the optimal order quantity? b) How many times per year does the distributor order R14 tires? c) What is the length of an order cycle, if the company does not operate on Saturdays and Sundays? d) What is the annual total cost if the optimal quantity is ordered?
Consider again the kitty litter ordering policy for Sam’s Pet Hotel in Problem 13. Suppose that the weekly demand forecast of 90 bags is incorrect and actual demand averages only 60 bags per week. How much higher will total costs be, owing to the distorted EOQ caused by this forecast error? Suppose that actual demand is 60 bags but that ordering costs are cut to only $6 by using the Internet to automate order placing. However, the buyer does not tell anyone, and the EOQ is not adjusted to reflect this reduction in S. How much higher will total costs be, compared to what they could be if the EOQ were adjusted?
Palin's Muffler Shop has one standard muffler that fits a large variety of cars. The shop wishes to establish a periodic review system to manage inventory of this standard muffler. Use the information in the following table to determine the optimal inventory target level (or order-up-to level). Ordering cost Service probability Annual demand 3,750 mufflers $ 60 92 % per order mufflers per working day per muffler % of item value working days Standard deviation of daily demand Item cost $39.00 working days per year Lead time 3 Working days Annual holding cost Review period 31 250 20 a. What is the optimal target level (order-up-to level)? (Use Excel's NORMSINV() function to find the correct critical value for the given a-level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.) Optimal target level b. If the service probability requirement is 92 percent, the optimal target level will: O Stay the same Decrease O…
Norris Harrell’s Computer Store in San Fernando sells a printer for $200. The annual demand for this is 600 units, with a standard deviation of 1.5 units daily. The holding cost is $20, while the cost of ordering is $60 per order. Currently the company is ordering 12 times per year. There are 250 working days per year and the lead time is 10 days. a. Given the current policy of ordering, what is the total ordering and holding costs? b. If the company uses the absolute best inventory policy, what would be the total ordering and holding costs?
The Co-op in problem 6 has discovered that it should establish a safety stock for its sweatshirts. It wants to use a reorder point system with a two-week lead time. The demand over a two-week interval has an average of 450 units and a standard deviation of 250 units.a. What reorder point should the Co-op establish to ensure a 95 percent service level for each order placed?b. What reorder point should be established to ensure that no more than one stockout occurs in the course of a year?c. How much average inventory will the Co-op carry for part b? Include both cycle inventory and safety stock in your answer.d. How often will the Co-op turn over its inventory, using the results from part c?
The Cover-up Drapery Company carries four types of fabric with the following characteristics: Type Annual Demand (yards) Item Cost per Yard 1 300 $20 2 250 $18 3 100 $12 4 200 $ 8 Assume that the items are to be ordered together from the same supplier at an ordering cost of $20 per order and an annual carrying cost of 20 percent. Also assume 300 working days in a year. a. If a P system is used, what is the optimal ordering interval in days? b. How much of each type of carpet would be ordered when a combined order is placed? c. What is the effect on the ordering interval of changing the carrying cost to 25, 30, and 35 percent? d. Why can’t these carpets be ordered by using a Q system? e. Classify the…
Henry Crouch's law office has traditionally ordered inkrefills 60 units at a time. The firm estimates that carrying cost is 40%of the $ 10 unit cost and that annual demand is about 240 units peryear. The assumptions of the basic EOQ model are thought to apply.a) For what va lue of ordering cost would its action be optimal?b) If the true ordering cost turns out to be much greater than youranswer to (a), what is the impact on the firm's ordering policy?
BIKO is a bike retailer located in the outskirts of Paris. BIKO purchases bikes from PMX in orders of 250 bikes which is the current economic order quantity. PMX is now offering the following bulk discounts to its customers: 2% discount on orders above 200 units 4% discount on orders above 500 units 6% discount on orders above 600 units BIKO is wondering if the EOQ model is still the most economical and whether increasing the order size would actually be more beneficial. Following information is relevant to forming the decision: Annual demand is 5000 units Ordering cost is $100 per order Annual holding cost is comprised of the following: 5% insurance premium for the average inventory held during the year calculated using the net purchase price Warehousing cost of $6 per unit Purchase price is $200 per unit before discount (Hint: We need to compare the total inventory cost of the order quantities at the various discount levels with that of the economic order quantity)
Zartex Co. produces fertilizer to sell to wholesalers. One raw material – calcium nitrate – is purchased from a nearby supplier at $22.50 per ton. Zartex estimates it will need 5,750,000 tons of calcium nitrate next year. The annual holding cost for this material is 40% of the acquisition cost, and the ordering cost is $595. a) What is the most economical order quantity? b) How many orders will be placed per year? c) How much time will elapse between orders
Kelly’s Tavern serves Shamrock draft beer to its customers.The daily demand for beer is normally distributed, with anaverage of 20 gallons and a standard deviation of 4 gallons.The lead time required to receive an order of beer from thelocal distributor is 12 days. Determine the safety stock andreorder point if the restaurant wants to maintain a 90% service level. What would be the increase in the safety stock ifa 95% service level were desired?
AMG sells 175 units per month of a certain large bath towel. The unit cost of a towel to the manufacturer is R2.50 and the cost of placing an order has been estimated to be R12.00. The organization uses an inventory carrying charge of 27% of the unit cost per year. Firstly determine the optimal order quantity, the order frequency, and the annual holding and setup cost and secondly determine through automation of the purchasing process, the ordering cost can be cut to R4.00, what will be the new economic order quantity, the order frequency, and annual holding and setup costs