OPIM 801 – OPERATIONS AND SUPPLY CHAIN MANAGEMENT

IN-CLASS EXERCISE #2 – INVENTORY MANAGEMENT

Please indicate student names:

QUESTION 1 (40 points):

Heartlake Bakery prepares all its cakes between 4:00 A.M. and 6:00 A.M. so they will be fresh when
customers arrive. Day-old cakes are virtually always sold, but at a 50% discount off the regular $10 price.
The cost of baking a cake is $6, and demand is estimated to be normally distributed, with a mean of 25 and
a standard deviation of 4. What is the optimal stocking level?

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QUESTION 2 (60 points):
Bell Computers purchases integrated chips at $350 per chip. The holding cost is 10% of the purchase price,
the ordering cost is $120 per order, and sales are steady at 400 per month. The company’s supplier, Rich
Blue Chip Manufacturing, Inc. decides to offer price concessions in order to attract larger orders. The price
structure is shown below. What is the optimal order quantity, and what is the annual cost?
Quantity purchased Price/unit
1-99 units $350
100-199 units $325
200 or more units $300

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