SCM 463

Waters Ch. 4Supplementary Problems

1. Your company has the following figures:

Revenue $10,000,000

Cost of Goods Sold 5,000,000

Inventory on hand 2,000,000

Purchasing Dept. Budget 300,000

Orders processed 2,000

Cost of insurance 3%

Borrowing rate 15%

Shrinkage 2%

Obsolescence 12%

What are your current turns, cost of ordering, and cost of holding inventory

2. Reordering cost = $200, Unit cost = $50, Holding cost = 20% (0.2 $/$/yr) , Demand = 3,000 per year. Find the EOQ.

3. Reordering cost = $60, Holding cost = 30% 0.3 $/$/yr, Demand = 500 / year. Find the EOQ.

4. In problem 2, your choices are to order 400 or 500 units at a time. How much of a change from the optimal order does each represent, and how much of a change in total costs?

5. In problem 3, your choices are to order 100 or 200 units at a time. How much of a change from the optimal order does each represent, and how much of a change in total costs?

6.The reordering cost is $300, Unit cost = $12, Holding cost = 25%, Demand = 4,000. Find the EOQ. You have to choose between ordering 500 or 1700 units at a time. Which do you choose?

7.You order 100 units at a time, and demand is 5200 units per year, (you are only open 5 days a week). What is your reorder point if the lead time is 2 days, 4 days, 6, days, 10 days?

8. Your cost of reordering is $400, holding cost is 20%, demand is 44,000 / year, and the unit cost is $40. Your supplier offers the following discount schedule:

order >=price

0 40

3,00038

6,00035

10,00032

What is the optimal order quantity?

9.You are ordering stereo systems that are made by a supplier in the Far East. Each container shipped costs $1500, and holds 1,000 stereo units. Holding costs are 20% of the unit cost of $250. Demand is 20,000. How many stereos should you order at a time?

10. The product you order from the corporate DC cost $5.00, and the reorder cost is $200. Demand is 20,000 units per year. Holding cost is 10%. What is the EOQ? HQ decides that you have not been paying the full cost of transportation, and decides to add an additional cost of $0.50 per unit for shipping. Now what is your EOQ?

11. Demand for your computers is 10,000 / year. They cost you $1,500 to make, and you sell them for $1,700. The holding cost is 50%, due to high obsolescence costs. Shipments cost $10,000, because the computers are made in SE Asia and you bring them into the U.S. via air-freight. Is this a profitable product for you to carry?

12. Your office superstore currently sells 10,000 of a certain toner cartridge per year. The current price is $60. Your supplier is offering a sale price of $50. Ordering cost is $68. Holding is 23% of value. How many should you buy at the special price? Stepping back from the mathematically optimal solution, does this seem like a good business decision?