Problem 4.14 A local machine shop buys hex nuts and molly screw from the same supplier.

The hex
nuts cost 15 cents each and the molly screw cost 38 cents each. A setup cost of $100 is assumed for
all orders. Holding cost are based on a 25 percent annual interest rate. The shop uses an average of
20.000 hex nut and 14.000 molly screws annually.
a. Determine the optimal size of the orders of hex nuts and molly screws, and the optimal time
between placements of orders of these two items.
Answer:
First Scheme: If these item are ordered separately
- Hex nut price = 15 cents
- Molly Screws = 38 cents
- Setup cost (K) = $100
- Holding cost (h) =25% annual interest rate

2. 𝐾. 𝜆
𝑄= √
ℎ

Q is known as the economic order quantity

Part A: Hex nut

Optimal size
- Annual demand, λ =20.000 pcs/year
- Holding cost, h = $100
- Annual interes rate = 25%
2.100.20.000
𝑄= √
0.25

= 𝟒. 𝟎𝟎𝟎 𝒑𝒊𝒆𝒄𝒆𝒔
Optimal Time
𝑄
𝑇=
𝜆
4.000
=
20.000
= 𝟎, 𝟐 𝒀𝒆𝒂𝒓𝒔
= 𝟐, 𝟒 𝑴𝒐𝒏𝒕𝒉𝒔
 Average Annual Holding Cost,
𝑄
= ℎ( )
2
4.000
= 0,25 ( )
2
= $500
Average annual setup cost,
𝐾. 𝜆
=
𝑄
100 × 20.000
=
4.000
= $500
Part B :Molly Screws
Optimal size
- Annual demand, λ =14.000 pcs/year
- Holding cost, h = $100
- Annual interest rate = 25%
2.100.14.000
𝑄= √
0.25

= 3.346,6 𝑝𝑖𝑒𝑐𝑒𝑠
Optimal Time
𝑄
𝑇=
𝜆
3.346,6
=
14.000
= 0,24 𝑌𝑒𝑎𝑟𝑠
= 2,86 𝑀𝑜𝑛𝑡ℎ𝑠
Average Annual Holding Cost,
𝑄
= ℎ( )
2
3.346.6
= 0,25 ( )
2
= $𝟑𝟏𝟖, 𝟑𝟐
 Average annual setup cost,
𝐾. 𝜆
=
𝑄
100 × 14.000
=
3346,6
= $𝟒𝟏𝟖, 𝟑𝟐
b. If both item are ordered and receive simultaneously, compare to the problem above.
Answer:
Optimal size
a. Annual demand, λ =20.000 + 14.000 pcs/year
b. Holding cost, h = $100
c. Annual interest rate = 25%
2.100.34.000
𝑄= √
0.25

= 5215,36 𝑝𝑖𝑒𝑐𝑒𝑠
Average Annual Holding Cost,
𝑄
= ℎ( )
2
5215,36
= 0,25 ( )
2
= $651,92
Average annual setup cost,
𝐾. 𝜆
=
𝑄
100 × 34.000
=
5.215,36
= $651,92
Comparison of separately and simultaneously orders cost:
Annual cost of holding
Separately order = $500+$418,32 = $918,32
Simultaneously order = $651

Annual cost of setup

Separately order = $500+$418,32 = $918,32
Simultaneously order = $651
From result above we can conclude that order the material simultaneously of nut and
screw give us more cheap solution than order separately.