UNIVERSITY OF TECHNOLOGY, JAMAICA

SCHOOL OF BUSINESS ADMINISTRATION

DECISION SCIENCE - MAN 3020
TUTORIAL SHEET - EOQ

QUESTION 1

Suppose that the Ace Radio Components Company has a product for which the
assumptions of the inventory model are valid. The company operates for 226 days
per year. Information obtained by the company is as follows:
Demand = 3,000 units per month
I = 7% (inventory cost per unit
C = $640 per unit
Ch = ????
Co = $75 per order
m = 7 days.
a. What is the EOQ for this component?
b. What is the reorder point?
c. What is the cycle time?
d. What are the total annual holding with your recommended EOQ
e. What is the ordering costs associated with your recommended
EOQ?

QUESTION 2

Jecto Co. Ltd. is a new specialty store that sells television sets, videotape recorders,
video games, and other television-related products. A new Japanese-manufactured
videotape recorder costs Jecto Co. Ltd $1750. Jecto Co. Ltd’s annual holding cost
rate is 12%. Ordering Costs are estimated to be $4120 per order. Jecto Co. Ltd
operates for 235 working days per year with a lead time of 8 days on each order.
a. If demand for the new videotape recorder is expected to be constant with a
rate of 435 units per month, what is the recommended order quantity for the
video recorder?
b. What are the estimated annual inventory holding and ordering costs
associated with this product?
c. How many orders will be placed per year?
d. What is the cycle time for this product.?
e. What is the reorder point?
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QUESTION 3

Ace Generator Company purchases a component used in the manufacture of

automobile generators directly from the supplier. Ace’s generator production
operation, which is operated a constant rate, will require 13,000 components per
year.

Assume that the ordering costs are $1600 per order, the unit cost is $116.30 per
component, and the annual holding costs are 12% of the value of the inventory.
Ace Generator Company has 290 working days per year and a lead time of 6 days.
Devise an inventory policy for Ace Generator Company to include:

■ Economic Order Quantity

■ Annual Holding Costs
■ Annual Ordering Costs
■ Total Annual Costs
■ Maximum Inventory Level = EOQ
■ Average Inventory Level = EOQ
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■ Reorder Point
■ Number of Orders per year
■ Cycle Time (Days)
.