Consider the problem faced by the 1OE department. We must buy paper for the printer (at...

  

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Consider the problem faced by the 1OE department. We must buy paper for the printer (at least in normal times we do). Suppose we use an average of 600 reams of paper each year. Each ream contains 500 pages. Each ream costs $5.00. The holding cost (representing the opportunity cost of money) is $0.50 per year. It costs the department $45 in personnel time to process an order for paper. a) Find the economic order quantity. How many reams of paper should the 1OE department order at any time? b) How many orders per year does this correspond to? c) What are the following costs? a. The annual ordering cost b. The annual inventory holding cost c. The total annual cost of procuring paper for the printer. d) Now suppose that the department does not want to place orders with the rather fractional value that you should have found for part (b). Instead it wants to place orders in some multiple of 2 times one month. In other words, it wants to order either every month, every other month, every fourth month, every eighth month and so on. Find the optimal (policy of 2) order interval (time between orders) for the department e) Using the value found in part (d), find a. The order size, the value of Q, b. The annual ordering cost c. The annual inventory holding cost d. The total annual cost of procuring paper for the printer. f) By what percentage does the total cost increase if they use the power of 2 policy in parts (d) and (e) compared to the optimal EOQ ordering policy? Hint: it should be no more than 6.1%. Consider the problem faced by the 1OE department. We must buy paper for the printer (at least in normal times we do). Suppose we use an average of 600 reams of paper each year. Each ream contains 500 pages. Each ream costs $5.00. The holding cost (representing the opportunity cost of money) is $0.50 per year. It costs the department $45 in personnel time to process an order for paper. a) Find the economic order quantity. How many reams of paper should the 1OE department order at any time? b) How many orders per year does this correspond to? c) What are the following costs? a. The annual ordering cost b. The annual inventory holding cost c. The total annual cost of procuring paper for the printer. d) Now suppose that the department does not want to place orders with the rather fractional value that you should have found for part (b). Instead it wants to place orders in some multiple of 2 times one month. In other words, it wants to order either every month, every other month, every fourth month, every eighth month and so on. Find the optimal (policy of 2) order interval (time between orders) for the department e) Using the value found in part (d), find a. The order size, the value of Q, b. The annual ordering cost c. The annual inventory holding cost d. The total annual cost of procuring paper for the printer. f) By what percentage does the total cost increase if they use the power of 2 policy in parts (d) and (e) compared to the optimal EOQ ordering policy? Hint: it should be no more than 6.1%.

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