Production and Operations Analysis, Fourth Edition

Solutions To Problems From Chapter 4

4.5

Total cost in 5 years = 12,500 + 5(2,000) = $22,500.

Let s = yearly savings as fraction of sales.
Then s solves
(80,000)(s)(5) = $22,500
s = 05625 (answer 5.625% per year)

4.12

= (1250)(.18) = 225
c = $18.50
I = .25
h = Ic = (.25)(18.50) = 4.625
K = 28
a) Q* =

2K
(2)(28)(225)
=
= 52
(.25)(18.50)
h
T = Q*/ = 52/225 = .2311 yrs.

b) T = 12.02 weeks
Hence, r = = (225/52)(6) = 25.96 26 units
c) If Q = 225, the average inventory level is Q/2 = 225/2 = 112.5. The annual
holding cost is (112.5)(4.625) = $520.31. At the optimal solution, the annual
holding cost is (52/2)(4.625) = $120.25.
The excess holding cost is $400.06 annually.
The annual holding and set-up cost incurred by this policy is $520.31 + 28 =
$548.31 since there is only one set-up annually.
The average annual holding and set-up cost at the optimal policy
is

2K h

(2)(28)(225)(4.65)

= $241.40.

Therefore the annual difference

4.15

=
=

= $306.91

175 per month = 2100 per year

$1.85
74

Solutions For Chapter 4

K

I
a)

=
=
=

Q =

200
3 weeks
.22 + .03 + .02 = .27
2K
h

T = Q/

=
=

(1297)/(2100) = .6175 years or 7.41 months.

R =
= (175)(3/4) = 131. (This answer could be different
depending upon how one scales 3 weeks.)

c)

Annual sales = 2100 salamis. The annual profit is

d)

4.17

= 1,297

b)

(S - c) -

4.16

(2)(200)(2100)
(.27)(1.85)

2 K h

= 2100(3 - 1.85) - (2)(200)(2100)(.27)(1.85)

= 2415 - 647.75 = $1,767 annual profit.

If the item has a 4 week shelf-life it is necessary to reduce his order size to a 4
weeks supply. Assuming for convenience 4 weeks to a month, this means he must
reduce his order size to 175 and order 12 times a year. (A more accurate answer
would be to order 2100/13 = 162 and assume 13 orders per year.) The holding and
set-up cost of 12 orders annually is (12)(200) + (.26)(1.85)(175)/2 = 2487.74
which exceeds the revenue of 2415. Hence this item is no longer profitable,
although the loss is small and may be worth incurring to satisfy customers.

This is an accurate statement since an equal error as measured in units is more costly
when it is below the optimal than when it is above the optimal. (see figure below)

=
=
=

10,000/day
6
6
.6 x 10 /year = .6 x 10 /250 = 2400/day
1500

75

Production and Operations Analysis, Fourth Edition

c
I

= 3.50
= .22 + .12 = .34

h = Ic(1 - /P) = (.34)(3.50)(1 - 2400/10,000) = .9044

(2)(1500)(2400)(250)
2K
=
= 44.612 lbs
.9044
h'

a)

Q =

b)

T1 = Q/P = 44,612/10,000 = 4.46 days

T = Q/ = 44,612/2400 = 18.59 days
T2 = T - T1 = 14.13
Up time = 4.46 days or 4.46/18.59 = .24 (24% of cycle is up time)
Down time = 14.13 days (76% of cycle is down time)

c)

Annual holding and set-up cost =

=

2K h'

(2)(1500)(600, 000)(.9044) = $40,347.49 annually.

If the compound sells for $3.90 per lb., then the annual profit exclusive of
holding and set-up cost is
(3.90 - 3.50)(600,000) = $240,000.00
Hence the profit generated from this item is
$240,000.00 - 40,347.49 = $199,652.51 annually.
4.18

Q =

2K
h

(2)(1500)(600,000)
(.34)(3.50)

= 38,892

The average annual cost error is .5(Q/Q* + Q*/Q).

Where Q/Q* = 38,892/44,612 = .87
cost error = .5[.87 + 1.15] = 1.01 or 1% of the optimal.
This translates to $403.47 annually.
4.22

K
I

= 20,000
= 100
= .20

All Units Discount

76

Solutions For Chapter 4

c0

(0)

(1)

(2

c1

2 K
=
1c0

$2.50

$2.40

c2

(2)(100)(20,000)
(.20)(2.50)

= 2828

2 K
=
1c1

(2)(100)(20,000)
(.2)(2.40)

= 2887

2 K
=
1c2

(2)(100)(20,000)
(.2)(2.30)

= 2949

$2.30

only Q is realizable. (Figure 11 is accurate with different breakpoints.)

Cost at Q = 4,000
(20,000)(2.30) +

(.2)(2.30)(4,000) (100)(20,000)
=
(4, 000)
2

= $47,420

(.2)(2.40)(3,000) (100)(20,000)
+
3,000
2

= $49,386.67

Cost at Q = 3,000
(20,000)(2.40) +
0

Cost at Q = Q

2828

(20,000)(2.50) +

2K IC0

>

50,000

It follows that the optimal order size is Q = 4,000

b)

$1420.

(47,420 - (20,000)(2.30))

c)

T = Q/ = 4,000/20,000 = .2 years = 2.4 months.

Hence, > T

.6
mos

2.4 mos.
3 months
77

Production and Operations Analysis, Fourth Edition

= (T - )

= (20,000)(.6/12) = 1,000.

4.24

800 875
750

(2)

Since Q
4.25

925
900

= 925 is realizable, it must be optimal.

Incremental discount schedule

= 140
K = 30
I = .18

C(Q) =

C(Q)/Q =

Q 25

350

for

(350)(25) + 315(Q 25)

(350)(25) + (315)(25) + 285(Q 50)

for 26 Q 50
for 51 Q

350

for Q 25

875/ Q + 315
2375 / Q + 285

for 26 Q 50
for 51 Q

78

Solutions For Chapter 4

C (Q) (30)(140)
C (Q) Q

G(Q) = (140)
+
+ (.18)

Q
Q
Q 2

(0)

G1(Q) = 140

(2)(30)(140)
= 11.55 12.00 (realizable)
(.18)(350)
Q
875
(30)(140)
875
+ 315 +
+ .18
+ 315
2
Q
Q
Q

123,700 (56.7)Q
+
+ 44,178.75
Q
2

(1)

(2)(123,700)
= 66 not realizable
56.7

2375
(30)(140)
2375
Q
G2(Q) = 140
+ 285 +
+ .18
+ 285
Q
Q

Q
2
333, 700 51.3Q
+
+ 40,113.75
2
Q

(2)

(2)(333,700)
= 114 realizable
51.3
(0)

Compare average annual costs at Q

(0)

G0(Q ) = (140)(350) +

(2)

G2(Q ) =

(2)

and Q .

(30)(140) (.18)(350)(12)
+
= $49,728
12
2

333, 700 51.3(114)

+
+ 40,113.75 = $45,965
2
114

Hence, the optimal solution is Q

(2)

which requires maintaining a standing order of 114.

79

Production and Operations Analysis, Fourth Edition

4.26 First we find the space consumed by lettuce and zucchini.
.45/.29 = 1.55 lettuce consumes (.5)(1.55) = .775
.25/.29 = .862 zucchini consumes (.5)(.862) = .431
Computing the respective EOQs, we have

EOQtom

(2)(100)(850)
= 1531
(,.25)(.29)

EOQlettuce

(2)(100)(1280)
= 1509
(.25)(.45)

EOQzucchini

(2)(100)(630
= 1420
(.25)(.25)

Next we find the value of the multiplier m.

m =

w EOQ
i

1000
1000
=
(.5)(1531) + (.775)(1509) + (.431)(1420) 2547

= .3926

Hence, the optimal order quantities are:

= (1531)(.3926) = 601

Qtomatoes
Qlettuce

= (1509)(.3926) = 592

Qzucchini

= (1420)(.3926) = 558

Checking that the constraint is satisfied:

(.5)(601) + (.775)(592) + (.431)(558) = 999.8.

4.27

If the vegetables are purchased at different times, then larger lot sizes could be used
without violating the space constraint, since the maximum inventory levels of Q1 would
not be reached simultaneously.

4.28

a)

w1
w2
w3

=
=
=

.5
.4
1

80

Solutions For Chapter 4

*

2 Ki i
hi + 2 wi

At the EOQ solution wi EOQi = (.5)(1531) + (.4)(1509) + (1)1420 = 2789.1,

the resulting m for equal ratios would be m = 1000/2789.1 =. 3585
which gives the scaled lot sizes as
Q1 = (1531)(.3585) = 549
Q2 = (1509)(.3585) = 541
Q3 = (1420)(.3585) = 509
2K i i

Now setting

hi + 2 wi

= Qi and solving for

(2)(100)(850)
.0725 + 2 (.5)

in each case gives

549

or
170,000
.0725 +

= 301,401, giving =

170,000
301, 401

= .0725 = .4915

(2)(100)(1280)
= 541
.1125 + 2 (.4)

256,000
.1125 + .8

= 292,681 .8 =

256,000
292,681

- .1125 =.9527

(2)(100)(630)
= 509
.0625 + 2 (1)

126, 000
126,000
= 259,081 2 =
.0625
259,081
.0625 + 2
Hence,

.2119

.9527

After some experimentation, one finds the optimal

Qtom

= .2119

= 605.62 ~ 606

81

= .391.

Production and Operations Analysis, Fourth Edition

Qlet = 775.84 ~ 776
Qzuc = 386.26 ~ 386

The space consumed at this solution is: (.5)(606)+(.4)(776)+(1)(386) = 999.4

The given data for this problem is:

1500
1680
540
2880

P
33600
52800
24000
39600

h
3.82
6.78
2.35
8.35

h
4.0
7.0
2.4
9.0

K
102
68
187
263.5

For consistency, we have expressed both and P in units of years. The holding
cost is computed by multiplying the unit costs by the interest rate of 20% and K is
obtained by multiplying the set-up times by $85 per hour.
*

a)

Substituting these quantities one obtains T

b)

The production quantities are computed from Qj = Tj. They are:

= .171041 years.

Q1 = 256.56, Q2 = 287.35, Q3 = 92.36, Q4 = 492.60.

c)

The up-times are computed from Tj = Qj/Pj. They are respectively:

T1 = .007635, T2 = . 005442, T3 = .003848, T4 = .012439. All of these
times are expressed in years. The total up time per cycle is the sum of these times
which is .029365. As a percentage of the total cycle time this is .02936/.17104 =
17.2%. It follows that the idle time constitutes 82.8% of each rotation cycle.

d)

500
400
300

units

4.30

200
100

4
5
time (days)

82

41

Solutions For Chapter 4

e)

The policy may be infeasible for several reasons. One might be that the lathe
could be required for other products and could not be freed up for .02936 years at
a time (about 7 consecutive working days). Another problem could be that the
required resources for the lot sizes recommended is not available at the same time.
Finally, the storage requirements for these lots might exceed the space in the
warehouse. Even if it is feasible, it might not be desirable to tie up so much cash
in inventory at one time.

83