Economic Order Quantity

1. Calculate the economic order quantity if annual demand for the product is
5,000 unit. The ordering cost is Rs 30 per order and holding cost is Rs 6/-
per unit per annual.

2. Nelson’s Hardware store stocks a 19.2 volt cordless drill that is a popular
seller. Annual demand is 5,000 units, the ordering cost is $15, and the
inventory holding cost is $4/unit/year.
What is the Economic Order Quantity?
 Linear Programming Using Graphical and Simplex Method
1. Solve the following model graphically;
Maximize Z= 4x1 +5x2
Subject to : X1 + 2X2 ≤ 10
6X1 + 6X2 ≤ 36
X1 ≤ 4
X1,X2 ≥ 0

2. Using Simplex method

Transportation Model

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. Example

We start with an empty matrix with demands at the bottom and supplies at the right.

SOLUTION:
USING VAM METHOD:
2.

Solution:
  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
GeeksforGeeks has prepared a complete interview prepar
USING LEAST COST METHOD:
2.
Quality Control Problems (USING CONTROL CHARTS )

1. Case Description
Cracking pressure, the pressure at which the relief valve opens, is a key characteristic. The valve can be
adjusted during assembly to crack at different pressures. Each customer has his or her own crack pressure
requirements.
 

Sampling Strategy
Cracking pressure is the only characteristic, but the requirements change with each order (see Table 1).
Because the production volume is steady and the standard deviation is expected to be consistent across all
cracking pressure settings, a target Xbar-R chart is used to monitor the process. Valves are 100 percent
tested, but for charting purposes, the test results from three out of every 30 valves are used for analysis on
control charts.
 Chart Interpretation
Range chart: No out-of-control plot points. There are no shifts, trends, or runs. It appears that the ranges are stable.
This normal pattern supports the assumption that the process standard deviation is not affected when the valves are
adjusted to different cracking pressures.

Target Xbar chart: Plot point comparisons to both the coded Xbar and the zero line must be made. Relative to the
coded Xbar ( –0.94) none of the jobs is centered; this is caused mainly by customer C’s job being run well below its
target of 180 psi. These plot points are pulling down the entire average, thus causing there to appear significantly
long runs of plot points above the coded Xbar.

Relative to the zero line, the valve for customer A is centered on target, valves for customer B are a little on the high
side of the target, and customer C’s valves are running consistently low.

Estimating the Process Average

The average difference from target is not the same for all three valve adjustments. So calculations
for X need to be done separately for each of the three customer requirements. The following example
focuses on customer A valves.

Calculation 3. Calculation for customer A's average cracking pressure.

Estimating Sigma
Because the range chart is in control across all three customer requirements, the estimate
of sigma for all valves may be based upon the range chart’s centerline (see Calculation 4). If the
range chart were not in control, separate, reliable R values would need to be calculated for each
of the customer requirements.

Calculation 4. Estimating sigma using R.

Calculating Process Capability and Performance

Ratios
Because the R chart is in control, the same sigma may be used for separately calculating all process
capability and performance ratios for the cracking pressures. Following are the Cp and Cpk calculations
for customer A valves.

Calculation 5. Cp calculation for customer A valves.

Calculation 6. Cpk upper calculation for customer A valves.

Calculation 7. Cpk lower calculation for customer A valves.

Table 3. Cp and Cpk calculations for valves B and C.