Inventory: Problem Solving

1
 EOQ: Example 1
• The ABC Semi Conductor Company purchase 40,000
units of mother board each year at a cost of $30.00
per unit. The ordering cost is $10.00 per order, and
the annual holding cost is estimated at 15% of the
unit value.
– What is the EOQ for the ABC?
– What is the total annual inventory cost for the mother
board if it is ordered in economic quantities?
– How many orders should be placed each year?

Slide 2
 EOQ: Example 2
• A company makes bicycles. It produces 500
bicycles a month. It buys the tires for bicycles
from a supplier at a cost of $35 per tire
annually. The company’s inventory carrying
cost is estimated to be 20% of purchase cost
and the ordering cost is $50 per order.
-What is the EOQ?
-What is the total annual cost?
-How many orders should be placed each year?

Slide 3
 EPQ: Example 1
• A fan manufacture plans to produce 40,000 units of a
special type of fan next year. The production rate is
200 fans per day, and there are 250 working days
available in a year. The setup cost is $200.00 per run;
the unit production cost is $15.00; holding cost is
$11.50 per unit per year.
-What is the economic production quantity?
-What is the total variable inventory cost for the fan
on an annual basis?
-How many production runs should be made each
year?

Slide 4
 EPQ: Example 2
• The Acme Bumper Co. manufactures bumpers for
automobiles for one of the big three auto companies. About
60,000 pairs of bumpers (front bumper and rear bumper) are
ordered by the auto company per year, at a price of $150.00
per pair. Pairs of bumpers are produced at a rate of about 400
per working day, and the company operates 240 days per year.
The company manufactures other products, and it must set
up the manufacturing system for a production order for pairs
of bumpers, which costs $250.00. It costs $2.50 to store one
pair of bumpers for one month.
-What is the EPQ?
-What is the total annual cost?

Slide 5