18ME410 Operations Research 2019-20 (E)

Assignment 3 Inventory Models

1. State the various forms of keeping inventory.

2. Mention the different types of inventory.

3. Mention the reasons for maintaining inventory.

4. State various costs involved in inventory.

5. Define: Holding cost, Shortage cost, Set up cost.

6. State the types of variables in an inventory model.

7. Define: Lead time, Re Order level and Economic order quantity.

8. Classify deterministic inventory models.

9. State the solution factors involved in any inventory problem.

10. State Wilson’s optimal lot size formula for purchasing model with no shortages.

11. State the expressions for the operating characteristics for purchasing model with no shortages.

12. State optimal lot size formula for manufacturing model with no shortages.

13. State the expressions for the operating characteristics for manufacturing model with no shortages.

14. State optimal lot size formula for purchasing model with shortages.

15. State the expressions for the operating characteristics for purchasing model with shortages.

16. State optimal lot size formula for the operating characteristics for manufacturing model with shortages.

17. State the expressions for the operating characteristics for manufacturing model with shortages.

18. List the various criteria for the decision making under the conditions of risk.

19. Describe the news paper boy problem.

PART B

1. The annual demand for an item is 3200 units. The unit cost is Rs.6 and inventory carrying charges 25% per annum. If
the cost of one procurement is Rs.150 , determine i) Economic order quantity ii) time between two consecutive orders
iii) number of orders per year iv) the optimal total cost.

2. A manufacturing company purchases 9000 parts of a machine for its annual requirements, ordering one month usage
at a time. Each part cost Rs.20.The ordering cost per order is Rs.15. and the carrying charges are 15% of the average
inventory per year. You has been asked to suggest a more economical purchasing policy for the company. What advice
would you offer, and how much would it save the company per year?

3. A certain item costs Rs.235 per ton. The monthly requirements are 5 tons, and each time the stock is replaced, there
is a set up cost of Rs.1000.The cost of carrying inventory has been estimated at 10% of the average inventory per
year. What is the optimum order quantity?

4. For an item, the production is instantaneous. The storage cost of one item is Re one per month and the set up cost is
Rs.25 per run. If the demand is 200 units per month , find the optimum quantity to be produced per set up and hence
determine the total cost of storage and set up per month.

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 18ME410 Operations Research 2019-20 (E)

5. A manufacturer has to supply his customer with 600 units of his products per year. Shortages are not allowed and
storage cost amounts to 60 paise per unit per year. The set up cost is Rs.80. Find i) The economic order quantity ii)
The minimum average yearly cost iii) The optimum number of orders per year iv) The optimum period of supply per
optimum order.

6. A company uses rivets at a rate f 5000 kg per year, rivets costing Rs.2 per Kg.It costs Rs. 20 to place an order and
carrying cost of inventory is 10% per year. How frequently should the order for rivets be placed and how much?.

7. A contractor has to supply 10000 bearings per month to an automobile manufacturer. He finds that when he starts a
production run he can produce 25000 bearings per month . The cost of holding a bearing in stock for one year is Rs.2
and the set up cost of a production run is Rs. 180.How frequently should the production run be made?

8. Find the most economic batch quantity of a product on a machine if the production rate of that item on the machine is
200 pieces per day. The set up cost is Rs.200 per batch and the cost of holding one item in inventory is Rs.0.81 per
day. How will the batch quantity vary if the machine’s production rate is infinite?

9. The annual demand for a product is 100000 units The rate of production is 200000 units per year. The set up cost per
production run is rs.5000, and the variable production cost of each is Rs.10.The annual holding cost per unit is 20% of
the value of the unit. Find the optimum production lot size and the length of the production run.

10. An item is produced at the rate of 50 items per day. The demand occurs at the rate of 25 units per day. If the set up
cost is Rs.100 per set up and holding cost is Re.0.01 per unit of item per day , find the economic lot size for one run,
assuming that shortages are not permitted. Also find the time of cycle and minimum total cost for one run.

11. A company has a demand of 12000 units per year for a item and it can produce 2000 such items per month. The cost
of one set up is Rs.400 and the holding cost per unit per month is Rs. 0.15 . Find optimum lot size, maximum
inventory, manufacturing time, total time.

12. A certain item costs Rs.250 per ton. The monthly requirements are 10 tons and each time the stock is replenished
there is a set up cost of Rs.1000.The cost of carrying inventory has been estimated as 12% of the value of the stock
per year. What is the optimal order quantity and how frequently should order be placed?

13. The demand for an item is 18000 units per year. The holding cost per unit time is Rs.1.20and the cost of shortage is
Rs.5, the production cost is Rs.400.Assuming that replacement rate is instantaneous, determine the optimal order
quantity.

14. A certain product has a demand of 25 units per month and the items are withdrawn uniformly. Each time a production
run is made , the set up cost is Rs.15.The production cost is Rs.1 per item and inventory holding cost is rs.0.30 per
item per month. If the shortage cost is Rs.1.50 per item per month, determine how often to make a production run ad
what size it should be?.

15. A dealer supplies the following information with regard to a product dealt in by him. Annual demand = 5000 units,
Buying cost = Rs.250 per order, Inventory carrying cost = 30% per year, Price= Rs.100 per unit. The dealer is
considering the possibility of allowing home back orders to occur for the product. He has estimated that the annual
cost of back ordering (allowing shortages) the product will be Rs.10 per unit. i) what should be the optimum number of
units of the product he should buy in one lot? ii) What quantity of the product should he allow to be back ordered? iii)
How much additional cost will he have to incur on inventory if he does not permit back ordering?.

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 18ME410 Operations Research 2019-20 (E)

16. A commodity is to be supplied at a constant rate of 200 units per day. Supplies for any amounts can be had at any
required time, but each ordering costs Rs.50 .Cost of holding commodity in inventory is Rs.2 per unit per day while
the delay in the supply of items induces a penalty of Rs.10 per unit per delay of one day. Formulate the average cost
function of this situation and find the optimal policy (q , t) where t is the reorder cycle period and q is the inventory
level after re order. What should be the best policy if the penalty cost becomes infinite?

17. A news paper boy has the following information regarding a magazine. Cost of copy of the magazine is 60 paise and
sales price is one rupee. Advise him with the help of i) EMV criterion ii) EOL Criterion to have the optimum stock and
also iii) Calculate the EVPI.

No. of Copies Sold : 10 11 12 13 14

Probability : 0.12 0.18 0.25 0.20 0.35

18. The average demand for a product is 42,000 units. The average lead time is 3 weeks. The standard deviation of
demand during the average lead time is 200 units per week .The cost of ordering is Rs.500 per order. The cost of
purchase of the product per unit is Rs.20.The cost of carrying per unit per year is 20% of the purchase price. The
maximum delay in lead time is 1 week and the probability of this delay is 0.30.Assume the service level of 0.95 .a)
What is the reorder level if the Q - system is followed b) What is the maximum inventory level if the P- System is
followed.

19. Find the optimum order quantity for a product for which the price breaks are as follows

Quantity Purchasing Cost

0<Q1<100 Rs 20 per unit

100<Q2<200 Rs 18 per unit

200<Q3 Rs 1 per unit.

The monthly demand is 400 units .The storage cost is 20 % of the unit cost of the product and the cost of ordering is Rs
25 per month.

20. Find the optimal order quantity for the following. The annual demand =3600 units.Order cost is Rs.50.Cost of storage
is 20% of the unit cost. The price Break is 0<Q1<100 Rs.20

100> Q2 Rs.18

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