Economic Order Quantity Problems

1. The John Sports Inc. purchases tennis balls at $20 per dozen from its suppliers. They will
sell 34,300 dozens of tennis balls evenly throughout the year. The total cost to handle a
purchase order is $10. The insurance, property tax and rent for each dozen tennis balls in
the average inventory is $0.40. The company wants a 5% return on average inventory
investment. Compute the E$10conomic Order Quantity.

Given : Solution:

Demand /year (D)= 34,300 dozens 2 × D ×Co

Cost per order(Co)= $10

EOQ= √ Ch
EOQ=
2 ×34,300 ×10
Cost of holding/unit (Ch) = √ 1.40

$0.40 + ($20×5/100)= $1.4 EOQ= 700 dozens answer.

Req’d: Economic Order Quantity (EOQ)

2. A company makes bicycles. It produces 450 bicycles a month. It buys the tires for the
bicycles from a supplier at a cost of $20/ tire. The company’s inventory carrying cost is
estimated to be 15% of cost and the ordering is $50 per order.

Given:

(2times/bicycle)×(450 bicycles/month)×(12momths/year)

Demand /year (D)=10,800 tires

Cost per order (Co)=$50

Ch=(15%)×($20/unit)= $3.00

Req’d: Economic Order Quantity (EOQ)

Solution:

2 × D ×Co 2 ×10,800 ×50

EOQ= √ Ch √
= 3

EOQ= 600 tires answer.

Linear Programming Problems

Using Graphical method
1. A workshop has three (3) types of machines A, B and C; it can manufacture two (2)
products 1 and 2, and all products have to go to each machine and each one goes in the
same order; First to the machine A, then to B and then to C. The following table shows:

The hours needed at each machine, per product unit

The total available hours for each machine, per week
The profit of each product per unit sold

Decision Variables: Objective Function:

  : Product 1 Units to be produced Maximize 
weekly Constraints:
  : Product 2 Units to be produced 
weekly



For the graphical solution of this model we will use the Graphic Linear Optimizer (GLP)
software. The green colored area corresponds to the set of feasible solutions and the level curve
of the objective function that passes by the optimal vertex is shown with a red dotted line.

The optimal solution is X_{1}=4 and X_{2}=4 with an optimal value V(P)=1(4)+1,5(4)=10 that
represents the workshop’s profit.
Using Simplex method :

1. Solve using the Simplex method the following problem:

Maximize Z = f(x,y) = 3x + 2y

subject to: 2x + y ≤ 18

2x + 3y ≤ 42
3x + y ≤ 24
x≥0,y≥0

Let x= X1
y= X2

2·X1 + X2 + X3 = 18
2·X1 + 3·X2 + X4 = 42
3·X1 + X2 + X5 = 24
Z - 3·X1 - 2·X2 - 0·X3 - 0·X4 - 0·X5 = 0

Calculations for P4 row are shown below:

Previous P4 row 42 2 3 0 1 0
 - - - - - -
Previous value in pivot column 2 2 2 2 2 2
x x x x x x
New value in pivot row 8 1 1/3 0 0 1/3
= = = = = =
New P4 row 26 0 7/3 0 1 -2/3

The tableau corresponding to this second iteration is:

To calculate the output base variable, the constant terms P0 column) are divided by the
terms of the new pivot column: 2 / 1/3 [=6] , 26 / 7/3 [=78/7] and 8 / 1/3 [=24]. As the
lesser positive quotient is 6, the output base variable is X3 (P3).
The new pivot is 1/3.

Updating the values of tableau again is obtained:

It is noted that in the last row, all the coefficients are positive, so the stop condition is fulfilled.

The optimal solution is given by the val-ue of Z in the constant terms column (P0 column), in the
example: 33. In the same column, the point where it reaches is shown, watching the
corresponding rows of input decision variables: X1 = 3 and X2 = 12.
Undoing the name change gives x = 3 and y = 12.

Transportation Model using intuitive method,

northwest and VAM

North West Corner Rule (NWC)

1. Obtain an initial basic feasible solution to
the following distribution of products to
various destinations from the sources.

If b1> a1, the move down vertically to the second row and make the second allocation of
magnitude x12 = min (a2,b1- x11) in the cell (2,1).

If b1<a1, then move right horizontally to the second column and make the second allocation of
magnitude x12 = min (a1 - x11,b2) in the cell (1,2).

If, b1=a1, there is a tie for the second allocation of magnitude x12 = min (a1 - a1 ,b1) = 0 in the
cell (1,2), or x21=min(a2,b1- b1 ) = 0 in the cell (2,1).

Following north-west corner rule, the first allocation is made to the cell (1, 1), the magnitude
being x11 = min. (250, 200) = 200. The second allocation is made to the cell (1, 2) and the
magnitude of the allocation is given by,

x12 = min. (250 – 200, 50) = 50.

The third allocation is made in the cell (2, 2), the magnitude being x22= min. (300, 225-50)=175.
In the cell (2, 3) is given by x23=min. (300 – 175, 275) = 125. The fifth allocation is made in the
cell (3, 3), the magnitude being x34 = min. (400-150, 250)=250. Hence an initial basic feasible
solution to the given transportation problem is obtained and given below.
Table – 1
The transportation cost according to the above route is given by,

z = (200x11) + (50x13) + (175x18) + (125x14) + (150x13) + (20x10)

= Rs.12,200.

2. Find Solution using North-West Corner method

Solution:

TOTAL number of supply constraints : 3

TOTAL number of demand constraints : 4
The rim values for S1=7 and D1=5 are compared.
The smaller of the two i.e. min(7,5) = 5 is assigned to S1
D1

This meets the complete demand of D1 and leaves 7 - 5 = 2 units with S1

The rim values for S1=2 and D2=8 are The rim values for S2=9 and D2=6 are
compared. compared.

The smaller of the two i.e. min(2,8) = 2 is The smaller of the two i.e. min(9,6) = 6
assigned to S1 D2 is assigned to S2 D2

This exhausts the capacity of S1 and leaves This meets the complete demand of D2
8 - 2 = 6 units with D2 and leaves 9 - 6 = 3 units with S2
The rim values for S2=3 and D3=7 are The rim values for S3=18 and D3=4 are
compared. compared.

The smaller of the two i.e. min(3,7) = 3 is The smaller of the two i.e. min(18,4) = 4
assigned to is assigned to S3 D3
S2 D3 This meets the complete demand of D3
This exhausts the capacity of S2 and leaves and leaves 18 - 4 = 14 units with S3
7 - 3 = 4 units with D3

The rim values for S3=14 and D4=14 are compared.

The smaller of the two i.e. min(14,14) = 14 is assigned to S3 D4

Intuitive Method

1. Find Solution using intuitive Least Cost method

The smallest transportation cost is 8 in cell S3D2

The allocation to this cell is min(18,8) = 8.

This satisfies the entire demand of D2 and leaves

18 - 8 = 10 units with S3

Solution:

TOTAL number of supply constraints : 3

TOTAL number of demand constraints : 4

 2. Find the solution using intuitive method

Solution: According to the Least Cost Cell method, the least

cost among all the cells in the table has to be found which is
1 (i.e. cell (O1, D2)).

Now check the supply from the row O1 and demand for
column D2 and allocate the smaller value to the cell. The
smaller value is 300 so allocate this to the cell. The supply
from O1 is completed so cancel this row and the remaining
demand for the column D2 is 350 – 300 = 50.

Now find the cell with the least cost among the remaining
cells. There are two cells with the least cost i.e. (O2, D1) and (O3, D4) with cost 2. Let’s select
(O2, D1). Now find the demand and supply for the respective cell and allocate the minimum
among them to the cell and cancel the row or column whose supply or demand becomes 0 after
allocation.

Now the cell with the least cost is (O3, D4) with cost 2.
Allocate this cell with 200 as the demand is smaller than
the supply. So the column gets canceled.

There are two cells among the unallocated cells that have
the least cost. Choose any at random say (O3, D2).
Allocate this cell with a minimum among the supply from
the respective row and the demand of the respective
column. Cancel the row or column with zero value.
Now the cell with the least cost is (O3, D3). Allocate the minimum of supply and demand and
cancel the row or column with zero value.

The only remaining cell is (O2, D3) with cost 5 and its
supply is 150 and demand is 150 i.e. demand and supply
both are equal. Allocate it to this cell.

Now just multiply the cost of the cell with their respective
allocated values and add all of them to get the basic
solution i.e. (300 * 1) + (25 * 2) + (150 * 5) + (50 * 3) +
(250 * 3) + (200 * 2) = 2400

Vogels approximation
method (VAM or penalty
method)

1. Problem: Obtain an
initial basic feasible solution to the following transportation.

Solution: Since, Sai=Sbj=950, there exists a feasible solution to the transportation problem. The initial
feasible solution can be obtained as given below.

Since the minimum cost in the first column is c11= 11, allocate x11=min. (250, 200)=200 in the cell
(1,1). These exhaust the requirement of the first column and, therefore, cross off the first column. The
row and column differences are now computed for the resulting reduced transportation table 1, the largest
of these is (5) which is associated with the second column. Since c12 (=13) is the minimum cost, allocate
x12 = min. (50, 225) = 50.
Thus exhausts the availability of first row and, therefore, we cross off the first row. Continuing in this
manner, the subsequent reduced transportation tables and the differences for the surviving rows and
columns are shown in table:

Eventually, the basic feasible solution obtained is shown in the following table: 

The transportation cost according to this route is given by

z = (200x11) + (50x13) + (175x18) + (125x10) + (275x13) + (125x10) = Rs.12,075

2.

Solution

For each row find the least value and then the second least value and take the absolute difference of these
two least values and write it in the corresponding row difference as shown in the image below. In row O1,
1 is the least value and 3 is the second least value and their absolute difference is 2. Similarly, for row O2
and O3, the absolute differences are 3 and 1 respectively.
For each column find the least value and then the second least value and take the absolute difference of
these two least values then write it in the corresponding column difference as shown in the figure. In
column D1, 2 is the least value and 3 is the second least value and their absolute difference is 1. Similarly,
for column D2, D3 and D3, the absolute differences are 2, 2 and 2 respectively.
No balance remains. So multiply the allocated value of the cells with their corresponding cell cost and
add all to get the final cost i.e. (300 * 1) + (250 * 2) + (50 * 3) + (250 * 3) + (200 * 2) + (150 * 5) = 2850
Quality Control Problems Using Control Charts
Data:

Time for processing an engineering change notice (ECN) in # of days

24 subgroups; sample size 3

Problem Statement:
In order to determine the quality capability of the documentation management in processing engineering
changes,
Depending on the sample size n used in the quality control analysis, the coefficients have different values.

Since the sample size is 3, we can use the following coefficients:

A2 1.023
Coefficients:
D4 2.574
D3 0
Analysis of Charts:

The control limits for the X-bar chart are as follows:

Data:
In this example, 12 samples from 500 frames of composite lumber, and the number of     
nonconforming units (D) is entered into our table for each sample:

  

Analysis of Chart:

With a sample size of 12, we get the above p-chart. The LCL is 0.000 and the UCL is 0.024. None of the
data points for percent nonconforming in the samples are anywhere near the control limits. In fact, they
are between 0.005 and 0.015 percent nonconforming. Therefore, this process is in control.