An office supply store open 5 days a week must determine the best inventory policy for boxes of copier

paper. Weekly dem

at 250 boxes and when orders are placed, then entire shipment arrives at once. The cost per box is $22 and the inventory ho
Orders are placed at a cost of $40 each, including preparation time and communication charges, and the lead time is 2 days.
table for the given problem and answer the following:

a. Find the optimal order quantity. 396.96

b. Find the optimal number of orders per year. 32.75
c. How often should an order be placed? 7.94
d. What is the cycle time? 7.94

Annual Demand 13,000.00

Ordering Cost 40.00
Annual Holding Rate % 30
Cost Per Unit 22.00
Working Days Per Year 260
Lead time (Days) 2

EOQ Table
Economic Order Quantity 396.96
Request Order Quantity 380.00
% Change from EOQ -4.27

Annual Holding Cost 1,309.96 1,254.00

Annual Order. Cost 1,309.96 1,368.42
Tot. Ann. Cost (TAC) 2,619.92 2,622.42
% Over Minimum TAC

Max. Inventory Level 396.96 380.00

Avg. Inventory Level 198.48 190.00
Reorder Point 100.00 100.00

No. of Orders/Year 32.75 34.21

Cycle Time (Days) 7.94 7.60
 s of copier paper. Weekly demand is nearly constant
box is $22 and the inventory holding cost is 30%.
es, and the lead time is 2 days. Construct an EOQ
A certain company has determined that the cost of being stocked out of motors is $150 for each unit and a carrying cost of $
indicates that the company should reorder 10 times each year. It has an average usage of 35 motors a day and lead time of 6
dropping the reorder point from 250 to 220. Based on the information below, what would you advise the company to do?

Lead Time 6
Average Usage 35
Annual Carrying Cost 15.00
Stockout Cost 150.00
Number of Order per year 10

Lead time demand 210

ROP 210.00

Use during reorder period, units Probability

200 0.10
220 0.08
240 0.06
260 0.04
280 0.02

Cost of Being Out of Stock

Total Annual
Safety Number Expected
ROP Cost of Being
Stock Short Annual Cost
Out of Stock
210.00 - 10.00 1,200.00 9,000.00
30.00 2,700.00
50.00 3,000.00
70.00 2,100.00
220.00 10.00 20.00 1,800.00 6,000.00
40.00 2,400.00
60.00 1,800.00
240.00 30.00 20.00 1,200.00 2,400.00
40.00 1,200.00
260.00 50.00 20.00 600.00 600.00
280.00 70.00 - - -

Cost of Safety Stock

Cost of Annual
Safety
ROP Being Out of Carrying Total Cost/Year Decision SS
Stock
Stock Cost
210.00 - 9,000.00 - 9,000.00 0 0
220.00 10.00 6,000.00 150.00 6,150.00 0 0
240.00 30.00 2,400.00 450.00 2,850.00 0 0
260.00 50.00 600.00 750.00 1,350.00 0 0
280.00 70.00 - 1,050.00 1,050.00 280 70
Minimum total cost per year 1,050.00
As shown in the computations above, the reorder point with safety stock that will
minimize the cost of inventory for the company is 280 units. Thus, I would advise the
company to not decrease their reorder point but rather increase it instead to 280 with a
safety stock of 70 units.
nit and a carrying cost of $15 per motor. The EOQ analysis
s a day and lead time of 6 days. The company is considering
ise the company to do?
Westside Auto purchases a component used in the manufacture of automobile generators directly from the supplier. West
at a constant rate, will require 1000 components per month throughout the year (12,000 units annually). Assume that the o
component, and annual holding costs are 20% of the value of the inventory. Westside has 250 working days per year and a
of being stock out of a certain item is P150 for each unit. Based on the given information, compute the reorder point with s

Annual Demand 12,000.00 Lead time 5

Ordering Cost 25.00 Average Usage 33.33
Holding Cost 0.50 Annual Carrying Cost 0.50
Annual Holding Rate % 20 Stockout Cost 150.00
Cost Per Unit 2.50 Number of Order per year 10.95
Working Days Per Year 250 Optimal Order Quantity 1,095.45
Lead time (Days) 5
Lead time demand 166.67
ROP 166.67

Use during reorder period, units Probability

200 0.22
240 0.40
280 0.25
320 0.06
360 0.04
400 0.03

Cost of Being Out of Stock

Total Annual
Number Expected Cost of
ROP Safety Stock
Short Annual Cost Being Out of
Stock
166.67 - 33.33 12,049.90 146,132.38
73.33 48,199.59
113.33 46,556.42
153.33 15,117.14
193.33 12,707.16
233.33 11,502.17
200.00 33.33 40.00 26,290.68 91,360.12
80.00 32,863.35
120.00 11,830.81
160.00 10,516.27
200.00 9,859.01
240.00 73.33 40.00 16,431.68 40,093.29
80.00 7,887.20
120.00 7,887.20
160.00 7,887.20
280.00 113.33 40.00 3,943.60 15,117.14
 80.00 5,258.14
120.00 5,915.40
320.00 153.33 40.00 2,629.07 6,572.67
80.00 3,943.60
360.00 193.33 40 1,971.80 1,971.80
400.00 233.33 - - -

Cost of Safety Stock

Cost of Annual Total
ROP Safety Stock Being Out of Carrying Decision SS
Cost/Year
Stock Cost
166.67 - 146,132.38 - 146,132.38 0 0
200.00 33.33 91,360.12 16.67 91,376.79 0 0
240.00 73.33 40,093.29 36.67 40,129.96 0 0
280.00 113.33 15,117.14 56.67 15,173.81 0 0
320.00 153.33 6,572.67 76.67 6,649.34 0 0
360.00 193.33 1,971.80 96.67 2,068.47 0 0
400.00 233.33 - 116.67 116.67 400 233.3333333
Minimum total cost per year 116.67

The reorder point with safety stock that will minimize the cost of inventory for Westside
Auto is 400 units.
 irectly from the supplier. Westside’s generator production operation, which is operated
ts annually). Assume that the ordering costs are $25 per order, the unit cost is $2.50 per
50 working days per year and a lead time of 5 days. Westside has determined that the cost
mpute the reorder point with safety stock.