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Inventory Management: Iscussion Uestions
Inventory Management: Iscussion Uestions
C H A P T E R
Inventory Management
DISCUSSION QUESTIONS
1. The four types of inventory are:
Raw
9. A decrease in setup time decreases the cost per order, encourages more and smaller orders, and thus decreases the EOQ.
10. Discount points below the EOQ have higher inventory costs,
and the prices are no lower than at the EOQ. Points above the
EOQ have higher inventory costs than the corresponding price
break point or EOQ at prices that are no lower than either of the
price beaks or the EOQ. (It depends on whether or not there exists
a discount point above the EOQ.)
12. If the same costs hold, more will be ordered using an economic production quantity, because the average inventory is less
than the corresponding EOQ system.
13. In a fixed-quantity inventory system, when the quantity on
hand reaches the reorder point, an order is placed for the specified
quantity. In a fixed-period inventory system, an order is placed at
the end of the period. The quantity ordered is that needed to bring
on-hand inventory up to a specified level.
14. The EOQ model gives quite good results under inexact inputs;
a 10% error in actual demand alters the EOQ by less than 5%.
15. Safety stock is inventory beyond average demand during
lead time, held to control the level of shortages when demand
and/or lead time are not constant; inventory carried to assure that
the desired service level is reached.
16. The reorder point is a function of: demand per unit of time,
lead time, customer service level, and standard deviation of demand.
17. Most retail stores have a computerized cash register (pointof-sale) system. At the time of purchase, the computer system
simultaneously rings up the bill and reduces the inventory level in
its records for the products sold.
ETHICAL DILEMMA
184
CHAPTER 12
END-OF-CHAPTER PROBLEMS
12.1
3. From the graph, what can you conclude about the relationship
between the lowest total cost and the costs of ordering and carrying inventory?
The lowest total cost occurs where the ordering and
inventory costs are the same.
4. How much does the total cost increase if the store manager orders
50 MORE hypodermics than the EOQ? 50 LESS hypodermics?
Ordering more increases costs by $2.50 or 2.5%. Ordering LESS increases costs by $4.17 or 4.17%
5. What happens to the EOQ and total cost when demand is
doubled? When carrying cost is doubled?
The EOQ rises by 82 units (41%) and the total cost rises
by $41 (41%) in EITHER case.
6. Scroll through lower setup cost values and describe the
changes to the graph. What happens to the EOQ?
The curves seem to drop and move to the left. The EOQ
decreases.
7. Comment on the sensitivity of the EOQ model to errors in
demand or cost estimates.
The total cost is not very sensitive to mistakes in forecasting demand or placing orders.
Code
XX1
B66
3CP0
33CP
R2D2
RMS
$ 7,008
$ 5,994
$ 1,003.52
$ 82,292.16
$ 2,220
$ 1,998.88
185
INVENTORY MANAGEMENT
Item
A2
B8
C7
D1
E9
F3
G2
H2
I5
J8
Annual
Demand
Cost ($)
Demand u Cost
Classification
3,000
4,000
1,500
6,000
1,000
500
300
600
1,750
2,500
50
12
45
10
20
500
1,500
20
10
5
150,000
48,000
67,500
60,000
20,000
250,000
450,000
12,000
17,500
12,500
B
C
B
B
C
A
A
C
C
C
186
CHAPTER 12
INVENTORY MANAGEMENT
12.3 First we rank the items from top to bottom on the basis of
their dollar usage. Then they are partitioned off into classes.
Item
Usage ($)
13
15
7
3
70,800
57,900
44,000
33,400
19
20
12
1
4
14
19,000
15,500
10,400
9,200
8,100
6,800
18
16
5
8
17
10
6
2
11
9
4,800
3,900
1,100
900
700
700
600
400
300
100
Class
700
2,450
3,850
12.6
700 y 20
2450 y 60
3850 y 120
35
40.83
32
Q=
2 u 240 u S
; or, 60
.4 u 10
60
480 S
, or,
4
where: D
cost
2 u 400 u 40
5
annual demand, S
$5 per year):
80 units
holding
$75
2 DS
2 u 15,000 u 75
300 units
H
25
(b) Annual holding costs (Q/2) u H (300/2)
u 25 $3,750
(a) EOQ
(d) ROP = d u L
(D/Q) u S
(15,000/300)
u 75 $3,750
15,000 units
u 8 days
300 days
400 units
12.11 D 10,000
Number of business days 300
Lead time 5 days
ROP [Demand/Day](Lead time)
166.67 # 167 units.
[10,000/300](5)
2 DS
H
2 u 4,000 u 25
0.10 u 90
74.5 valves
Demand 4,000
(c) Number of orders per year
EOQ
149
26.8 or 27 orders
(d) Assuming 250 business days per year, the optimal
number of business days between orders is given by:
250
27
1
days
4
That is, if S were $30, then the EOQ would be 60. If the true ordering cost turns out to be much greater than $30, then the firms
order policy is ordering too little at a time.
73 units
$25/unit/year, S
60
2 DS
H
15,000, H
600 units
12.9 D
2(8,000)45
2
EOQ
2(19,500)(25)
493.71 494 units
4
(b) Annual holdings costs [Q/2]H [494/2](4) $988
(c) Annual ordering costs [D/Q]S [19500/494](25) $987
2 u 400 u 40
6
2 DS
H
2 DS
2(2500)18.75
H
1.50
250 brackets per order
Q 250
(b) Average inventory
125 units
2
2
Q
H 125(1.50) $187.50
Annual holding cost
2
12.13 (a) Q
CHAPTER 12
(d) TC
Q
D
H S
2
Q
D 2500
10 orders /year
Q
250
D
S 10(18.75) $187.50
Q
187.50 187.50
$375/ year
working days
(D/Q)
250
25 days
10
DS QH
2
Q
1,200 u 25 25 u 24
For Q 25:
$1,500
25
2
1,200 u 25 40 u 24
For Q 40:
$1,230
40
2
1,200 u 25 50 u 24
For Q 50:
$1,200
50
2
1,200 u 25 60 u 24
For Q 60:
$1,220
60
2
1,200 u 25 100 u 24
For Q 100:
$1,500
100
2
As expected, small variations in order quantity will
not have a significant effect on total costs.
2 DS
H
2 u 1,200 u 25
24
50 units
(150)2 (1)
2(250)
22,500
=
$45
500
12.16 Production Order Quantity, noninstantaneous delivery:
=
2 DS
2 u 10,000 u 200
H 1 d
p
50
1.00 1
200
EOQ
2 DS
H
2(250)20
1
Q/2
100/2
holding
(a) D
12,000/yr.
$.10/light-yr.
$50/setup
$1.00/light
100/day
12,000/yr.
300 days/yr.
2 DS
40 / day
2(12,000)50
40
d
.10 1
H 1
100
p
100 units
Q d
1 H
2 p
$26,832
200
$134.16
D
12,000
S
50
4,472
Q
$134.16
12.15 (a) The EOQ assumptions are met, so the optimal order
quantity is
2 DS
H
2 H
Q
2D
187
INVENTORY MANAGEMENT
50 units
PD $134.16 $134.16
($1 u 12,000) $134.16 $134.16
$12,268.32/year
12.18 (a) Production Order Quantity, noninstantaneous delivery:
2 DS
H 1 dp
2 u 10,000 u 40
50
0.60 1
500
d
Q 1 1,095
p
188
CHAPTER 12
(c)
D
Q
10,000
1,217
(d) TC
INVENTORY MANAGEMENT
8.22
I max
D
H S
Q
2
$657.30
= 29.6 units
EOQ
2,000 units.
The quantity discount will save $480 on this item. The company
should also consider some qualitative aspects of the decision, such
as available space, the risk of obsolescence of disks, and the risk
of deterioration of the storage medium over time, as 6,000 represents one sixth of the years needs.
12.20 Under present price of $50.00 per unit, Economic Order
Quantity:
2 DS
H
2 u 1,000 u 40
0.25 u 50
Total cost
80 units
holding
2(1,400)(25)
0.2(400)
2(1,400)(25)
0.2($380)
= 30.3 units
EOQ (adjusted) = 300 units
Because this last economic order quantity is below the discounted
price, we must adjust the order quantity to 300 units. The next
step is to compute total cost.
Total cost (with discount) = material cost + ordering cost
+ carrying cost
1,400(25)
= $380(1,400) +
300
300($380)(0.2)
2
$532,000 $117 $11,400
$543,517
The optimal strategy is to order 300 units at a total cost of
$543,517.
12.22 Economic Order Quantity:
Q
where: D annual demand, S
cost, price/unit
2 DS
H
setup or order cost, H
holding
2 u 45 u 10
0.05 u 20
Total cost
30 units
2 u 45 u 10
0.05 u 18.50
31.19 or 31 units
CHAPTER 12
TC1,000
PD HQ/2 SD/Q
= $17 u 20,000 (.2 u $17 u 1,000)/2
($40 u 20,000) /1,000
= $340,000 + $1,700 + $800
= $342,500 per year
700 u 12, H
2 u 45 u 10
0.05 u 15.75
33.81 or 34 units
12.23 D 20,000/yr.
I 20 percent of purchase price per year in holding costs,
where H IP
S $40/order
P $20/tire if fewer than 500 are ordered;
$18/tire if between 500 and 999 are ordered; and
$17/tire if 1,000 or more are ordered
2 DS/H
= (2 u 20,000 u 40) /(.2 u 20)
= 632.5 (not valid)
Q18
2 DS/H
= (2 u 20,000 u 40) /(.2 u 18)
= 666.7 (valid)
Q17
$16.00
$15.50
$15.00
Baker
1399
400799
800
$16.10
$15.60
$15.10
DS QH
PD
2
Q
45 u 10 100 u 0.05 u 15.75
(45 u 15.75)
100
2
4.5 39.38 708.75 $752.63
Based purely upon cost, the decision should be made to
order in quantities of 100, for a total cost of $752.63.
It should be noted, however, that an order quantity of
100 implies that an order will be placed roughly every
two years. When orders are placed that infrequently, obsolescence may become a problem.
Q20
50
1499
500999
1000
5, S
Allen
189
INVENTORY MANAGEMENT
2 DS/H
= (2 u 20,000 u 40) /(.2 u 17)
= 686 (not valid)
We compare the cost of ordering 667 with the cost of ordering 1,000.
TC667 PD HQ/2 SD/Q
= $18 u 20,000 (.2 u $18 u 667)/2
($40 u 20,000)/667
= $360,000 + $1,200 + $1,200
= $362,400 per year
(a)
2 DS
H
2(8,400)50
5
409.88 o 410
410
8,400
(5)
(50) 8,400(16)
2
410
at 500, TC
500
8,400
(5)
(50) 8,400(15.5)
2
500
at 1,000, TC
$136,449.36
$132,290
1,000
8,400
(5)
(50) 8,400(15)
2
1,000
$128,920 BEST
Vendor: Baker
at 410, TC
at 800, TC
410
(5)
2
800
(5)
2
8,400
(50) 8,400(15.60)
410
8,400
(50) 8,400(15.10)
800
$133,089.39
$129,365
190
CHAPTER 12
12.25 S
10, H
3.33, D
INVENTORY MANAGEMENT
2,400
Costs
Qty
Price
Holding
Ordering
Purchase
120
150
300
500
$33.55
$32.35
$31.15
$30.75
$199.80
$249.75
$499.50
$832.50
$200.00
$160.00
$80.00
$48.00
$80,520.00
$77,640.00
$74,760.00
$73,800.00
$80,919.80
$78,049.75
$75,339.50
$74,680.50
Vendor A
120
150
300
500
$34.00
$32.80
$31.60
$30.50
$199.80
$249.75
$499.50
$832.50
$200.00
$160.00
$80.00
$48.00
$81,600.00
$78,720.00
$75,840.00
$73,200.00
$81,999.80
$79,129.75
$76,419.50
$74,080.50
Vendor B
120
200
400
$33.75
$32.50
$31.10
$199.80
$333.00
$666.00
$200.00
$120.00
$60.00
$81,000.00
$78,000.00
$74,640.00
$81,399.80
$78,453.00
$75,366.00
Vendor C
120
200
400
$34.25
$33.00
$31.00
$199.80
$333.00
$666.00
$200.00
$120.00
$60.00
$82,200.00
$79,200.00
$74,400.00
$82,599.80
$79,653.00
$75,126.00
Vendor D
EOQ
Total
BEST
(a)
$50, H
50%, D
Price
EOQ
$17.00
$16.75
$16.50
$17.10
$16.85
$16.60
336.0672
338.5659
341.1211
335.0831
337.5598
340.0921
9,600
Vendor
feasible
not feasible
not feasible
feasible
not feasible
not feasible
(b), (c)
Costs
Qty
Price
Holding
Ordering
Purchase
336
500
1000
$17.00
$16.75
$16.50
$1,428.00
$2,093.75
$4,125.00
$1,428.57
$960.00
$480.00
$163,200.00
$160,800.00
$158,400.00
$166,056.57
$163,853.75
$163,005.00
Vendor A
335
400
800
$17.10
$16.85
$16.60
$1,432.13
$1,685.00
$3,320.00
$1,432.84
$1,200.00
$600.00
$164,160.00
$161,760.00
$159,360.00
$167,024.97
$164,645.00
$163,280.00
Vendor B
1200
$16.25
$4,875.00
$400.00
$156,000.00
$161,275.00
BEST
60; V
60 9
VZ(at 0.90)
69 BX-5 bandages.
1.88
ZV
50 9.4
1.88(5)
59.4 drives
9.4 drives
Total
CHAPTER 12
191
INVENTORY MANAGEMENT
12.29
Incremental Costs
Safety Stock
Carrying Cost
0
100
200
Stockout Cost
0
1,500
3,000
100 u 15
200 u 15
Total Cost
4,200
1,400
0
4,200
2,900
3,000
The safety stock that minimizes total incremental cost is 100 units. The reorder point then becomes
200 units 100 units or, 300 units.
12.30
Demand during Reorder Period
Probability
0
50
100
150
200
0.1
0.2
0.4
0.2
0.1
1.0
Incremental Costs
Safety Stock
Carrying Cost
Stockout Cost
Total Cost
0
50
100
0
50 u 10 500
100 u 10 1,000
1000
750
1000
The safety stock that minimizes total incremental cost is 50 sets. The reorder point then becomes
100 sets 50 sets or, 150 sets.
12.31
Safety
Stock
0
10
20
30
Additional
Carrying Cost
Stockout Cost
Total
Cost
0
10 u 5 50
20 u 5 100
30 u 5 150
3,150
1,450
450
150
The BB-1 set should therefore have a safety stock of 30 units; ROP
12.32 Only demand is variable in this problem so Equation
(12-15) applies
(a) ROP (average daily demand u lead time in days)
ZVdLT
(1,000 u 2) (2.05)(V d )
lead time
90 units.
(6 u 625) (40,000 u 4)
163,750 # 405
1,718 cigars
2,290 towels
290 towels
So ROP
2,000 2.05(100) 2
2,000 290
3,750 160,000
(6 u 252 ) (2002 u 22 )
12.36
Holding Cost
$2,000
600
750
280
12,800
800
300
$17,530
Ordering Cost
1,500
500
800
30,000
500
1,000
$34,300
Note: Items of New Product Development, advertising, and research are not part of holding or ordering cost.
192
CHAPTER 12
INVENTORY MANAGEMENT
$34,300
200
$17,530
10,000
$171.50
$1.753
(2)(1000)(171.5)
1.753
Therefore, EOQ
D/250
8,000/250
400/200
maximum/2
2 DS
2(8000)120
d
H 1
p
32
50 1
200
$10,800 $8,980
336
168
(168)50 20(120)
$8,400 $2,400
$10,800
213.81
4,490 4,490
$8,980
15,000 lbs/year
4 days with V
15 Stockout risk
1%
= 2.33
ROP Lead time demand SS
(= )(VdLT) and lead time demand
where SS
V dLT
ROP
(e) SS
LT (15)
369.99
4 (15)
(d)(LT)
30
where ROP
(d)(LT) SS
100
75
50
200
150
300
100
50
100
75
A
B
C
A
B
12.40
E102
D23
D27
R02
R19
S107
S123
U11
U23
V75
Annual
Demand u
Demand Cost ($)
Cost
Classification
800
1,200
700
1,000
200
500
1,200
800
1,500
1,500
12.41
EOQ
12.42
300
$209.37
4.00
8.00
3.00
2.00
8.00
6.00
1.00
7.00
1.00
4.00
3,200
9,600
2,100
2,000
1,600
3,000
1,200
5,600
1,500
6,000
2(1000)62.50
0.50
C
A
C
C
C
C
C
B
C
B
27%
16%
33%
17%
500 units
2(8,000)45
90,000
H
720,000
$8
90,000
Q
(b) Total annual holding cost =
H = (200)($3) = $600
2
D
(c) Total annual order cost =
S = (37.5)(16) = $600
Q
(d) LT
A
B
C
D
E
$1,820
Cost ($)
Item
336/2
20
Q(1 d/p)
(f) Q
8,000/400
400(1 32/200)
average inventory
Annual
Demand
32
Q/p
SKU
442.34 units.
720,000
H
2 DS
H
2 u 1,500 u 150
45
100 units
setup or order cost,
$2,250.00
$2,250.00
CHAPTER 12
2 u 5,000 u 30
50
2 DS
H
77.46 or 78 units
2 DS
H 1 dp
2 u 2,000 u 10
1
Total cost
Total cost
holding
200 units
For Q 50:
600 u 60 50 u 20
50
2
720 500
DS QH
2
Q
Note: No, EOQ with 200 units and a total cost of $2,200 is better.
12.49 Under present price of $7.00 per unit, Economic Order
Quantity:
$1,220
2 DS
H
2 u 6,000 u 20
0.15 u 7
60 units
600 u 60 60 u 20
60
2
60:
600 600
$1,200
For Q
2 DS
H
2 DS
H
holding
Note: Order and carrying costs are not equal due to rounding of
the EOQ to a whole number. If an EOQ of 77.46 is used, the order
and carrying costs calculate to $1,936.49 for a total cost of
$3,872.98.
2 u 8,000 u 100
0.80 1 40
150
DS QH 5,000 u 30 78 u 50
Q
2
78
2
1,923.02 1,950 $3,873.08
193
INVENTORY MANAGEMENT
holding
194
CHAPTER 12
INVENTORY MANAGEMENT
Q
where: D annual demand, S
cost, P price/unit
2DS
H
setup or order cost, H
2 u 100 u 45
0.20 u 18
Total cost
holding
$18.00
CASE STUDIES
Total cost
8
15
31
59
97
60
July
Aug
Sept
Oct
Nov
Dec
Total
$17.50
Note: Order and carrying costs are not equal due to rounding the
EOQ to a whole number. See note at end of problem regarding
price.
50 units
DS QH
PD
Q
2
100 u 45 50 u 0.20 u 18
(18 u 100)
50
2
90 90 1,800
$1,980 (see note at end of problem
Total cost
Note: Order and carrying costs are not equal due to rounding of
the EOQ to a whole number. Under the quantity discount price of
$6.65 per unit:
Total cost order cost holding cost purchase cost
DS QH
PD
Q
2
6,000 u 20 3,000 u 0.15 u 6.65
(6,000 u 6.65)
3,000
2
40.00 1,496.25 39,900 $41,436.25
Therefore, the new policy, with a total cost of $41,436.25, is
preferable.
39
24
16
15
28
47
439
Average demand per month 439/12 36.58 bicycles. The standard deviation of the monthly demand 25.67 bicycles. The inventory plan is based on the following costs and values.
Order cost
Cost per bicycle
Holding cost
Service level
Lead time
Total demand/year
$65/order
$102.00
($102.00) u (1%) u 12 per year per bicycle
$12.24 per year per bicycle
95%, with corresponding Z value of 1.645
1 month (4 weeks)
439 units of bicycles
The solution below uses the simple EOQ model with reorder point
and safety stock. It ignores the seasonal nature of the demand. The
fluctuation in demand is dealt with by the safety stock based on
the variation of demand over the planning horizon.
Economic order quantity (Q*) is given by:
Q
where the total demand and the holding cost are calculated on the
same time unit (monthly, yearly, etc.). Thus,
Q
2 u 439 u 65
| 68 units of bicycles
12.24
CHAPTER 12
Total annual
inventory cost
195
INVENTORY MANAGEMENT
Carrying cost
2 DS
H
2 u 5,000 u 20
6
100
Note: Order and carrying costs are not equal due to rounding of
the EOQ to a whole number.
The cost savings under the EOQ ordering policy would then be:
Cost under present policy: $301,414.00
Cost under EOQ policy:
301,095.45
$ 318.55
which is a very small savings.
4. The typical costs associated with procurement of materials
include costs of preparing requisitions, writing purchase orders, receiving merchandise, inspecting goods, storage, updating inventory
records, and so forth. These costs are usually fixed, regardless of the
size of the order. A large order may require more processing time (in
inspection, for example), but the increase in procurement costs is
typically minimal. As lot size increases, the number of orders decreases (assuming a constant requirement level). Consequently, procurement costs typically decrease with an increase in lot size.
196
CHAPTER 12
INVENTORY MANAGEMENT
for those items not initially included on the bill of material. To the
extent feasible, stockrooms would be consolidated.
3. The inventory control manager would implement these changes
through effective leadership, hiring and training of cycle counters,
and effective training and education of all staff, from engineering
through cycle counters, so that each understands the entire system
and the importance of maintaining accurate inventory. We would
also want to be assured that all concerned employees understand the
importance of accurate inventory records, tight inventory control,
and locked stockrooms. Management would have to exhibit the
proper leadership and support of the entire system, including accurate bills of material, rapid issuing of ECNs, training budgets, etc.
SOUTHWESTERN UNIVERSITY: F
Key Points: This case lets the student look at a simple inventory
problem that can be discussed at several levels. By using a standard EOQ formula, the student gets a fast, easy solution that is
close. However, the case lends itself to further discussion that can
make the limitations of EOQ readily apparent.
1. Because this is a one-year demand, demand violates the EOQ
assumption of constant demand. Therefore, the number of orders
should not be prorated (as does the standard EOQ computation) nor
are all orders at the EOQ optimum of 60,000. The total cost and
total profit will not be accurate if the theoretical solution is used.
Theoretical Solution: Maddux should order 60,000 per order from First Printing. The simple theoretical EOQ solution is
3 13 orders of 60,000 each for a setup cost of $1,000, and the total
is $310,600. The instructor can accept this as less than precise, but
adequate. The solution is close because the total EOQ line is so
flat (robust) around the optimum. Alternatively, the instructor can
expand the discussion to the real application.
Excel OM software output (theoretical solution) is shown
below.
Data
Demand rate, D
Setup cost, S
Holding cost %, I
Minimum quantity
Unit Price, P
200,000
300
0.5
Range 1
10,000
1.62
Range 2
30,000
1.53
Range 3
60,000
1.44
Range 4
250,000
1.26
Range 1
Results
Range 2
Range 3
Range 4
12,171.61
12,171.61
$4,929.50
$4,929.50
$324,000.00
$333,859.01
12,524.48
30,000.00
$11,475.00
$2,000.00
$306,000.00
$319,475.00
12,909.94
60,000.00
$21,600.00
$1,000.00
$288,000.00
$310,600.00
13,801.31
250,000.00
$78,750.00
$240.00
$252,000.00
$330,990.00
on
site,
our
companion
web
CHAPTER 12
( 3 13 u $300) $1,000
but in fact 4 orders must be placed;
3 at 60,000 and 1 at 20,000. Four setups cost $1,200 (4 u $300)
Unit cost
Ordering cost
Ask
Minimum quantity
Unit price, P
200,000
300
0.05
Range 1
10,000
0.81
Range 2
30,000
0.765
Range 3
60,000
0.72
Data
Demand rate, D
Setup cost, S
Holding cost %, I
Range 4
250,000
0.63
Results
Range 1
Range 2
Range 3
Range 4
54,433.1
54,433.1
$1,102.27
$1,102.27
$162,000.00
$164,204.54
56,011.2
56,011.2
$1,071.21
$1,071.21
$153,000.00
$155,142.43
57,735.0
60,000
$1,080.00
$1,000.00
$144,000.00
$146,080.00
61,721.3
250,000
$3,937.50
$300.00
$126,000.00
$130,237.50
Maddux needs 40,000 inserts for each game and must order them
on a per game basis. Inserts for each game are unique, as statistics
and lineup for each team changes as the season progresses. If
60,000 people are going to attend the game, then 40,000 inserts
are required (2 of 3 people or 2/3 of 60,000). Therefore, the quantity discount issue, although it should be evaluated, takes second
place to the necessity of ordering 40,000 inserts for each game.
197
INVENTORY MANAGEMENT
198
CHAPTER 12
INVENTORY MANAGEMENT
The EOQ for a yearly demand of 2,000, order cost of $10.00, and
holding cost of 0.12(10.05) $1.206 is
EOQ
2(10)(2,000)
1.206
182.12
2DS
H
2(499.5) u 50
41.4
499.5
41.625
(50)
(41.4) (499.5)(414)
41.625
2
= 600 + 861.62 + 206,793
= $208,254.62
499.5
34.74
(50)
(41.4) (499.5)(414)
34.74
2
= 718.91 + 719.12 + 206,793
= $208,231.03
Savings Present TC Optimum TC $23.59
Optimum TC