1. A company is about to begin production of a new product.

The manager of the department that will produce

one of the components for the product wants to know how often the machine used to produce the item will
be available for other work. The machine will produce the item at a rate of 200 units a day. Eighty units will
be used daily in assembling the final product. Assembly will take place five days a week, 50 weeks a year.
The manager estimates that it will take almost a full day to get the machine ready for a production run, at a
cost of $300. Inventory holding costs will be $10 a year.

a. What run quantity should be used to minimize total annual costs?

b. What is the length of a production run in days?
c. What is the annual total cost?
d. During production, at what rate will inventory build up?
e. If the manager wants to run another job between runs of this item, and needs a minimum of 10 days
per cycle for the other work, will there be enough time?

2. About the previous problem, considerer a backorder cost of $100 per month

a. What run quantity should be used to minimize total annual costs?

b. What is the maximum inventory level?
c. What is the maximum possible number of units backordered?
d. What is the annual total cost?

3. A company will begin stocking remote control devices. Expected monthly demand is 800 units. The
controllers can be purchased from either supplier A or supplier B. Their price lists are as follows:

Ordering cost is $40 and annual holding cost is 25 percent of unit price per unit. Which supplier should
be used and what order quantity is optimal if the intent is to minimize total annual costs?

4. A manufacturer produces a variety of integrated circuits. The cost of setting up to produce a lot of one
particular type of integrated circuit is $4,000. The cost of the product is estimated to be $8. By collaborating
with its customers, the manufacturer estimates that the demand during the next 8 months will be as follows:
15,000; 24,000; 20,000; 10,000; 5,000; 5,000; 20,000; and 4,000 units. The holding cost rate is 24% on an
annual basis. Assume production times are small compared to the length of a month. Resolve this dynamic
inventory problem using the six methods showed in class. For constant period use n=3. Suppose that there
are 5000 circuits on hand initially and that it is desired to have at least 4,000 units on hand at the end of the
eighth month.

5. A component used in a manufacturing facility is ordered from an outside supplier. The component is used
in a variety of finished items and therefore the demand is high. Forecast demand (in thousands) over the
next 12 weeks is:
Week 1 2 3 4 5 6 7 8 9 10 11 12
Demand 69 29 36 61 61 26 34 67 45 67 79 56
Each component costs 70 cents and the inventory carrying charge rate is 0.56 cents ($0.0056) per unit per
week. Assume instantaneous delivery. Resolve this dynamic inventory problem using the six methods
showed in class. For constant period use n=3.