Activity 3: Practice Problems

1. How many items should be counted per day?

Answer: 380 per day

Solution:

Item Quantity Policy Number of Items to

Class Count Per Day

A 1,000 Every 5 days 1000/5 = 200/day

B 4,000 Every 40 4000/40=100/day

days

C 8,000 Every 100 8000/100=80/day

days

Total items to count per day: 380/day

a. What is EOQ?

Answer: 268.33 or 268 items

Given: Demand= 360

Holding cost per year  $1.00 per unit

Order cos t:  $100 per order
Solution:
EOQ= square root of (2*Demand*Order Cost) / Holding Cost
= sqrt (2*360*100) / 1
= sqrt (72,000) /1
= 268.33 or 268 items

b. How many orders should be processed per year? What is the expected time between
orders?
Answers:
Orders should be processed per year: 1.34 orders per year
Expected time between orders: 223.88 or 224 days between orders
Solutions:
N= Demand/EOQ
=360/268
=1.34 orders per year
Expected time= Working days/ Expected number of Order
= 300/1.34
=223.88 or 224 days between orders

c. What is the total cost for the inventory policy used in the problem?

Answer: $268

Solution:

Total Cost= [(Demand*Order Cost)/EOQ] + [(EOQ*Holding Cost)/2]

= [(360*100)/268] + [(268*1)/2]

=134.33 + 134

=$268.33 or $268

d. What will be the actual annual total cost?

Answer: $320.57 or $321

Solution:

Total Cost= [(Demand*Order Cost)/EOQ] + [(EOQ*Holding Cost)/2]

= [(500*100)/268] + [(268*1)/2]

=186.57 + 134

=$320.57 or $321

e. What should you use for a re-order point?

Answer: 45 units

Solution:

ROP= lead-time x Demand= 15 x 3= 45 units