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Assignment - Inventory Management

The document presents details of a bakery that buys flour in 25-pound bags and uses an average of 4,860 bags per year. It costs $10 per order to prepare and receive a shipment, and the annual carrying cost is $75 per bag. It then provides details of a sausage factory that produces hot dogs at 5,000 units per day and supplies local restaurants 250 per day. The factory operates 300 days per year. Finally, it describes a chemical firm that produces sodium bisulphate in 100-pound bags with a daily demand of 20 tons and daily production capacity of 50 tons. The firm operates 200 days per year with a $100 setup cost and $5 per ton annual storage cost

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Kaushal Shrestha
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896 views3 pages

Assignment - Inventory Management

The document presents details of a bakery that buys flour in 25-pound bags and uses an average of 4,860 bags per year. It costs $10 per order to prepare and receive a shipment, and the annual carrying cost is $75 per bag. It then provides details of a sausage factory that produces hot dogs at 5,000 units per day and supplies local restaurants 250 per day. The factory operates 300 days per year. Finally, it describes a chemical firm that produces sodium bisulphate in 100-pound bags with a daily demand of 20 tons and daily production capacity of 50 tons. The firm operates 200 days per year with a $100 setup cost and $5 per ton annual storage cost

Uploaded by

Kaushal Shrestha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Problem#3

A large bakery buys flour in 25-pound bags. The bakery uses an average of' 4,860
bags a year. Preparing an order and receiving a shipment of flour involves a cost of
$10 per order. Annual carrying costs are $75 per bag.
(A) Determine the economic order quantity.
(B) What is the average number of bags on hand?
(C) How many orders per year will there be?
(D) Compute the total cost of ordering and carrying flour.
(E) If ordering costs were to increase by $1 per order, how much that would
affect the minimum total annual cost?
ANSWER
D = 4,860 bags/yr.
S = $10
H = $75
2DS
2(4,860)10
=
= 36 bags
H
75
b. Q/2 = 36/2 = 18 bags

a. Q =

c.

D
4,860 bags
=
=135 orders
Q 36 bags / orders
D

d. TC = Q / 2H + Q S
=

36
4,860
(75) +
(10) = 1,350 +1,350 = $2,700
2
36

e. Using S = $5, Q =
TC =

2( 4,860)(11)
= 37.757
75

37.757
4,860
(75) +
(11) =1,415.89 +1,415.90 = $2,831.79
2
37.757

Increase by [$2,831.79 $2,700] = $131.79


Problem#9
The friendly Sausage factory (FSF) can produce hot dogs at a rate of 5,000 units per
day. FSF supplied hot dogs to local restaurant at a steady state rate of 250 per day.
The cost to prepare equipment for producing hot dog is $66. Annual holding cost is 45
cents per hot dog. The factory operates 300 days a year. Find
a) The optimal run size.
b) The number of runs per year.
c) The length (in days) of a run.

ANSWER
p = 5,000 hotdogs/day
u = 250 hotdogs/day
D= 250/day x 300 days/yr. = 75,000 hotdogs/yr.
300 days per year
S = $66
H = $.45/hotdog per yr.
a.
Q0 =

2DS
H

p
=
p u

2(75,000)66
.45

5,000
= 4,812.27 [round to 4,812]
4,750

b. D/Qo = 75,000/4,812 = 15.59, or about 16 runs/yr.


c. Run length: Qo/p = 4,812/5,000 = .96 days, or approximately 1 day
Problem#10
A chemical firm produces sodium bisulphate in 100-pound bags. Demand for this
product is 20 tons per day. The capacity for producing the product is 50 tons per day.
Setup cost $100 and storage and handling cost are $5 per ton a year. The firm operates
200 days a year. (Note 1 ton = 2000 pounds)
a) How many bags per run are optimal?
b) What would the average inventory be for this lot size?
c) Determine the approximate length of a production run in days?
d) About how many runs per year would there be?
e) How much could the company save annually if the setup cost reduced to
$25 per run?
ANSWER
p = 50/ton/day
u = 20 tons/day D= 20 tons/day x 200 days/yr. = 4,000 tons/yr.
200 days/yr.
S = $100
H = $5/ton per yr.
a.
Q0 =

2DS
H

p
=
p u

b. I max =

2( 4,000)100
5

50
= 516.40 tons [10,328 bags]
50 20

Q
516.4
(p u ) =
(30) = 309.84 tons [approx. 6,196.8 bags]
P
50

Average is

I max 309.48
:
= 154.92 tons [approx. 3,098 bags]
2
2

c. Run length =

Q 516.4
=
=10.33 days
P
50
D

4,000

d. Runs per year: Q = 516.4 = 7.75 [approx. 8]


e. Q = 258.2
TC =

I max
D
H+ S
2
Q

TCorig. = $1,549.00

TCrev. = $ 774.50
Thus, savings would be $774.50.

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