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Inventory Management

9) Independent demand means the demand for item is independent of the demand for any
other item in inventory. Example: demand for bicycle, TV and table.
Dependent demand - the demand for item is dependent upon the demand for some other
item in the inventory. Example: the demand for cloth (fabric) depends on the demand of
clothing.
10,000
10) d = = 33.3
300

 ROP = 33.3 × 5

= 166.6 = 167 units

11) ROP = 21 × 100

= 2,100 units

12) D = 15,000 units per year


S = $75
H = $25
2 (15,000)(75)
a) Q* = √ = 300 units
25
300
b) Annual holding cost =( ) 25 = 3,750
2
15,000
c) Annual ordering cost = 75 = 3,750
300

13) D = 36,000 disks


S = $25
2(36,000)(25)
H = $0.45 Q= √ = 2000 units
0,45

Purchase price = $0.85


Discount price = $0.82
D 𝑄
TC = Q 𝑆 + H + PD
2
36,000 2000
TC = 25 + 0.45 + 0.85 × 36,000
2000 2

TC = 31,500
Quantity needed to qualify for the discount = 6,000 disks. Should the discount be taken?
36,000 6000
TC = 25 + 0.45 + 0.82 × 36,000
6000 2

TC = 31,020
So, the discount should be taken because the total cost of discount 31,020 is lower than
31,500 means its more worth it.
14) D = 500 units per month → 6000 units per year
H = 50% → 0.5
S = 75
a) Vendor 1:
2DS
EOQ (Q1*) = √ IP
2(6000)(75)
= √(0.5)($20.00)
900000
=√ 10

= √90,000
= 300 units
2(6000)(75)
EOQ (Q2*) = √ (0.5)($18)

= 316 units
2(6000)(75)
EOQ (Q3*) = √ (0.5)($16)

= 335 units
Vendor 2 :
2(6000)(75)
EOQ (Q1*) = √ (0.5)($20.5)

= 296 units
2(6000)(75)
EOQ (Q2*) = √ (0.5)($18.5)

= 312 units
2(6000)(75)
EOQ (Q3*) = √ (0.5)($18)

= 316 units
2(6000)(75)
EOQ (Q4*) = √ (0.5)($16)

= 335 units
b) Adjusted
Vendor 1: Q1 = 300
Q2 = 500
Q3 = 1000
Vendor 2: Q1 = 296
Q2 = 400
Q3 = 800
Q4 = 1200
c) Vendor 1
Disc. Unit Order Annual Annual Annual Total Cost
No Price Quantity Product Ordering Holding
Cost(P×D) 𝐷 𝑄
Cost(𝑄 𝑆) Cost( 2 𝐻 ×

0.5)
1 $20 300 10,000 $125 $1,500 $11,625
2 $18 500 9,000 $75 $2,250 $11,325
3 $16 1000 8,000 $37.5 $4,000 $12,037.50
Vendor 2

Disc. No Unit Order Annual Annual Annual Total


Price Quantity Product Ordering Holding Cost
Cost Cost Cost
1 $20.50 296 10,250 $127 $1,517 $11,894
2 $18.50 400 9,250 $94 $1,850 $11,194
3 $18 800 9,000 $47 $3,600 $12,647
4 $16 1,200 8,000 $31 $4,800 $12,831

So, the supplier can choose Vendor 2 that has the cheapest total cost in Discount No 2 which is
$11,194.

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