1. (a) The purchasing agent for a company that assembles and sells air-conditioning equipment in a Latin American country noted that the cost of compressors has increased significantly each time they have been reordered. The company uses an EOQ model to determine order size. What are the implications of this price escalation with respect to order size? What factors other than price must be taken into consideration? 2

(b) A company uses on an average 90 circuit boards a day with a standard deviation of 15 board per day in a manufacturing process. The circuit board is imported from Taiwan. Cost of placing and receiving an ordering is Tk43200. Estimated monthly carrying cost is Tk60 per circuit board. Orders are delivered approximately 8 days after being placed. The delivery time is normal with a mean of 8 days and a standard deviation of 2 days. The company is open 300 days per year.

1. Find the order quantity that is economical. 2

2. If the Company takes 4% stock out risk, then find safety stock (SS) quantity and Re-Order Point? 2

3. If the supplier offers a discount of 8 taka per circuit board for purchasing of 3000 boards at a time then financially evaluate and justify whether the company will go with the offer or not? 2

4. The person who orders the boards follows this rule: Order when the amount on hand drops to 1050 boards. What is the probability that the supply of circuit boards will be exhausted before the order is received if boards are reordered when the amount on hand drops to 1050 boards? 2