Assignment - Inventory Management
Assignment - Inventory Management
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
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
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
I max
D
H+ S
2
Q
TCorig. = $1,549.00
TCrev. = $ 774.50
Thus, savings would be $774.50.