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MEE1024 Operations Research / Module 5 Tutorial Problems / Darla / SMEC / FS2017-18

5.1.The demand for a particular item is 18000 units per year. The holding cost per unit is Rs.1.20
per year and the cost of one order is Rs.400. No shortages are allowed and the replacement
rate is instantaneous. Determine: (a) Optimum order quantity (b) Number of orders per year
(c) Time between orders and (d) Total cost per year when the cost of one unit is Re.1

5.2.A commodity is to be supplied at a constant rate of 200 units per day. Surplus of any amount
can be had at any time, but each ordering costs Rs.50. The cost of holding the commodity in
inventory is Rs.2 per unit per day, while delay in the supply of the item induces a penalty of
Rs.10 per unit per day. Find the optimal policy (Q, t) and the minimum cost. What would be
the above values when the penalty cost becomes infinity?

5.3.A manufacturer has to supply his customers with 600 units of his product per year. Shortages
are not allowed and the storage cost amounts to Re.0.6 per unit per year. The set-up cost per
run is Rs.80. Find the minimum run-size and the minimum average yearly cost.

5.4.A company purchases 9000 parts of a machine for its annual requirements, ordering one
month’s usage at a time. Each part cost Rs.20, the ordering cost per order is Rs.15 and the
carrying charges are 15% of the average inventory per year, you have been asked to suggest a
more economical purchasing policy for the company. What advice would you offer and how
much would it save the company per year.

5.5.A contractor has to supply 10000 bearings per day to an automobile manufactures. He finds
that when he starts a production run, he can produce 25000 bearings per day. The cost of
holding a bearing in stock for one year is Rs.2 and the set-up cost of a production run is
Rs.1800. How frequently should production run be made?

5.6.The demand of an item is uniform at a rate of 20 units per month. The fixed cost is Rs.10
each time a production run is made. The production cost is Rs.1 per item and the inventory
carrying cost is Rs.0.25 per item per month. If the shortage cost is Rs.1.25 per item per
month. Determine how often to make a production run and of what size it should be.

5.7. A Company uses annually 24000 units of a raw material, which costs Rs1.25 per unit.
Placing each order costs Rs.22.50 and the carrying cost 5.4% per year of the average
inventory. Find the EOQ and the total inventory cost including the cost of the material.
Should the company accept the offer made by the supplier a discount of 5% in the cost price
on a single order of 24000 units?

Prof. Siva Prasad Darla 1

5.8. The demand of an item in a company in 18000 units per year and the company can produce the
item at a rate of 3000 per month. The cost of set up in Rs.500 and the holding cost of 1 unit per
month is Rs.0.15. The shortage cost of the one unit is Rs.20 per year. Determine the optimum
manufacturing quantity, the number of shortages. And also determine the manufacturing time
and the time between supplies.

5.9. The demand for a product is 600 units per week and the items are withdrawn at a constant
rate. The setup cost for placing an order to replenish inventory is Rs.25. The unit cost of each
item is Rs.3 and the inventory holding cost is Rs.0.05 per item per week. (a) Assuming
shortages are not allowed, determine how often to order and what size the order should be.
(b) If shortages are allowed but cost Rs.2 per item per week, determine how often to order
and what size the order should be.

5.10. A particular item has a demand of 9000 units per year. The cost of one procurement is Rs.100
and the holding cost per year is Rs.2.40 per year. The shortage cost is Rs.5 per unit per year.
Determine the following:
(a) the economic lot size
(b) the number of order per day
(c) the time between order
(d) the total variable inventory cost per year
(e) the total inventory cost per year if the cost of one unit is Re.1
.
5.11. Neon lights are replaced at the rate of 100 units per day in VIT University of Vellore campus.
The purchasing department orders the neon lights periodically. It costs Rs.100 to initiate a
purchase order. A neon light kept in storage is estimated to cost about Rs. 0.02 per day. The
lead time between placing and receiving an order is 12 days. Determine the optimal
inventory policy for ordering the neon lights and its associated minimum cost. What would
be the change of policy and its cost when the department is not maintaining the stock which
incurring the cost of opportunity for one unit is Rs.1 per day.

5.12. The demand for a product is 600 units per week and the items are withdrawn at a constant
rate. The setup cost for placing an order to replenish inventory is Rs.25. The unit cost of
each item is Rs.3 and the inventory holding cost is Rs.0.05 per item per week. (i) Assuming
shortages are not allowed, determine how often to order and what size the order should be.
(ii) If shortages are allowed but cost Rs.2 per item per week, determine how often to order
and what size the order should be.

5.13. A shopkeeper has a uniform demand of an item at the rate of 50 items per month. He buys
from supplier at a cost of Rs.6 per item and the cost of ordering is Rs.10 per time. If the stock
holding costs are 20% per year of stock value, how frequently should be replenish his stocks.

Prof. Siva Prasad Darla 2

Now, suppose the supplier offers a 5% discount on orders between & including 200 and 999
items and a 10% discount on orders exceeding or equal to 1000. Can the shopkeeper reduce
his costs by taking advantage of either of these discounts?

5.14. Given that cost of one ordering is Rs.180, carrying cost is 10% of the unit cost and demand is
500 units per year. Find the optimum quantity of a product whose price breaks are given
below:

Quantity : 0-499 500-1499 1500-2999 over 3000

Unit cost (Rs.) : 25.00 24.80 24.60 24.40

5.15. Find the optimum order quantity for a product for which the price breaks are as follows:

Quantity Unit cost

0  Q1< 50 Rs.10.0
50  Q2 < 100 Rs.9.0
100  Q3 Rs.8.0
The monthly demand for the product is 200 units, the cost of storage is 25% of the unit cost
and ordering cost is Rs.20.0 per order.

5.16. A factory uses annually 24000 units of a raw material, which costs Rs1.25 per unit. Placing
each ordering costs Rs.25 and the carrying cost is 6% per year of average inventory. Find the
EOQ and total inventory cost including the cost of the material. The factory works in 320
days a year. If the normal lead-time is 10 days and safety stock 450 units, find the reorder
point and the min, max and average inventories.

5.17. A newspaper boy buys paper for 60 paise each and sells them for Rs.1.40 each. He cannot
return unsold newspaper. Daily demand has the following distribution
No. of customer : 23 24 25 26 27 28 29 30 31 32
Probability :0.01 0.03 0.06 0.1 0.2 0.25 0.15 0.1 0.05 0.05

If each day's demand is independent of the previous days, how many papers should be
ordered each day?

5.18. Consider a single period model with holding cost Re.1 per unit and shortage cost of Rs.4.00.
If Rs.2.00 be the purchasing cost per unit then determine the optimal order level of the
inventory, given the probability distribution of the given item in the following table.
(a) z :0 1 2 3 4 5
(b) p(z) :0.1 0.2 0.25 0.2 0.15 0.1

5.19. A probability distribution of monthly sales of an item is as follows:

Monthly sales(units) :0 1 2 3 4 5 6
Probabilities :0.01 0.06 0.25 0.3 0.22 0.1 0.06

Prof. Siva Prasad Darla 3

The cost of carrying inventory (unsold during the month) is Rs.30 per unit per month and
cost of unit shortage is Rs.70. Determine optimum stock to minimize expected cost, if the
sales of the item are uniform nature during the period.

5.20. An organization stocks seasonal products at the start of the season and cannot reorder. The
inventory item costs him Rs.35 each and he sells at Rs.50 each. For any item that cannot be
met on demand, the organization has estimated a goodwill cost of Rs.25. Any unsold item
will have a salvage value of Rs.20. Holding cost during the period is estimated to be 10% of
the price. The probability distribution of demand is as follows:

Units 2 3 4 5 6
stocked
Probability 0 0 0 0 0
of demand . . . . .
3 2 2 1 0
5 5 5 5

Determine the optimum number of items to be stocked. Suppose the under stocking cost is
not known, but the decision maker policy is to maintain a stock level of 5 units. Determine
for what values of the under estimating cost justify the optimal policy.

5.21. If the demand for a certain product has a rectangular distribution between 4000 and 5000.
Find the optimal order quantity if storage cost is Re.1 per unit and shortage cost is Rs.7 per
unit. Also find the previous if demand is uniform.

5.22. An ice-cream company sells one of its types of ice-cream by weight. If the product is not sold
on the day it is prepared, it can be sold at a loss of 50 paise per pound. But there is an
unlimited market for one day old ice-cream. On the other hand the company makes a profit of
Rs.3.20 on every pound of ice-cream sold on the day it is prepared. Past daily orders form a
distribution with
a. f(x) = 0.02-0.0002x; 0  x  100.
How many pounds of ice-cream should the company prepare every day?

5.23. The probability distribution of monthly sales of a certain item is as follows.

Monthly sales(units) :0 1 2 3 4 5 6
Probabilities :0.02 0.05 0.3 0.27 0.2 0.1 0.06
The cost of carrying inventory is Rs.10.00 per unit per month. The current policy is to
maintain a stock of 4 items at the beginning of each month. Assuming that the cost of
shortage is proportional to both time and quantity short, determine the imputed cost of a
shortage of one item for one unit of time.