This is solution of problem 4 of homework set 4 that deals with a multiple

product inventory problem with (in this case) a space problem.

Fixed Cost
$2,000
interest rate
25%

item

Annual
Demand

DVD Player
27-inch TV
DVD
CD-R
Compact stereo
telephone

800
1600
8000
12000
400
1200

Cost per
Unit
$100.00
$400.00
$5.00
$3.00
$200.00
$50.00

Space per
unit (cubic
feet)
12
18
3
2
24
3

fixed unit
cost
Orders
$2,000
$2,000
$2,000
$2,000
$2,000
$2,000

storage

217.48
197.55
1638.9
2471.2
108.74
455.21

20000

Time
(years)
0.27185
0.12347
0.20486
0.20593
0.27185
0.37934

<=

fixed costs
$7,357.02
$16,198.24
$9,762.94
$9,711.93
$7,357.03
$5,272.29

holding costs subtotal cost

$2,718.49
$9,877.62
$1,024.28
$926.70
$2,718.49
$2,845.06
grand total

20000

$10,075.51
$26,075.85
$10,787.22
$10,638.63
$10,075.52
$8,117.35

EOQ
357.771
252.982
5059.64
8000
178.885
619.677

$75,770.09

EOQ costs
$8,944.27
$25,298.22
$6,324.56
$6,000.00
$8,944.27
$7,745.97
$63,257.29

storage

46178.1456

The data in this example are from Example 4.7 of

your text.
interest rate
22%
setup cost/hour
$110
working days/yr
$250
working hours/day
8
Annual
Production
Demand
rate
setup time
Style
(units/year) (units/year) (hours)
W pump
W loafer
W boot
W sandal
M wingtip
M loafer
M Oxford

4520
6600
2340
2600
8800
6200
5200

35800
62000
41000
71000
46800
71200
56000

3.2
2.5
4.4
1.8
5.1
3.1
4.4

T* (year)

0.15294469

Tmin (year)

0.04008134

proportional
cost ($/unit)
$40
$26
$52
$18
$38
$28
$31

Quantity

Quantity
Graph of production cycle when no
"retooling" time is needed

T1

T2

T3

T: Cycle length for each cycle is the same

time

setup cost
$352
$275
$484
$198
$561
$341
$484

modified
production
holding cost levels
$7.69
691.31
$5.11 1009.43496
$10.79 357.890575
$3.81 397.656195
$6.79 1345.91327
$5.62 948.257079
$6.19 795.312389
Total prod time:===>

production
time (year)
0.01931034
0.01628121
0.00872904
0.00560079
0.02875883
0.01331822
0.01420201
0.10620043

Quantity
Graph of production cycle when
"retooling" time is needed. S1, s2
s3 are the retooling times

s1 T1

s2

T2

s3 T3

T: Cycle length for each cycle is the same

time