JOB 2

1. The supplier of product wants to discourage large quantity purchases. Suppose that all of the
assumptions of the basic EOQ apply except that a reverse quantity discount is applicable, that is, the
unit variable cost is given by

𝑣0 0 < 𝑄 < 𝑄𝑏
{ Where d>0
𝑣0 (1 + 𝑑) 𝑄𝑏 ≤ 𝑄

a. Write an expression (or expressions for the total relevant costs per year as a function of the order
quantity Q, Introduce (and define) whatever other symbols you feel are necessary.

b. Using graphical sketches, indicate the possible positions of the best order quantity (as is done in
figures shown in class)

c. Which is the best order quantity for an item with the following characteristics:

Demand rate: 50.000 units per year

Fixed setup cost per replenishment =$10
V= $1.00/unit d=0,005
Selling price=$1.44/unit
Carrying charge = 0.20 $/$/yr.
Qb = 1500 units.

2. Consider an Item with the following properties:

A = $ 20 v = $ 2/unit r = 0.24 $/$/yr

At time 0 the inventory has dropped to zero and a replanishment (with negligible lead time) must be
made. The demand pattern for the next twelve months is:

Month j 1 2 3 4 5 6 7 8 9 10 11 12
Demand
50 70 100 120 110 100 100 80 120 70 60 40
(units) Dj

All the requirements of each month must be available at the beginning of the month. Replenishments
are restricted to the beginnings of the months. No shortages are allowed. Using each of the following
methods, develop the pattern of replenishments to cover the twelve months and the associated total
costs of each pattern (do not bother to count the costs of carrying D(j) during its period of consumption,
namely, period j). In each case, the size of the last replenishment should be selected to end month 12
with no inventory.

a. Fixed economic order quantity (rounded to the nearest integer number of months of supply; that is,
each time the EOQ, based on the average demand through the entire twelve months, is adjusted so that
it will last for exactly an integer number of months).
b. A fixed time supply (an integer number of periods), based on the EOQ expressed as a time supply,
using the average demand rate for the 12 months.

c. On each replenishment, selection of Q (or, equivalently, the integer T), which minimizes the costs per
unit of quantity ordered to cover demand through T.

d. The Silver-Meal heuristic.

e. One replenishment at the start of month 1 to cover all the requirements to the end of month 12.

f. A replenishment at the beginning of every month.

Hint: For each case, it would be helpful to develop a table with al least the following columns: (1) Month,
(2) Replenishment Quantity, (3) Starting Inventory, (4) Demand, (5) Ending Inventory.