Item Annual

Demand Unit

Cost $ Annual Dollar

Value $($ADV$)$ Annual Dollar

Value $($ADV$)$ in order $\%$ of usage Cumulative $\%$ Class

$13,0001030,000$

$29,000327,000$

$31,000710710,000$

$42,500250625,000$

$51,900500950,000$

$640020080,000$

$750010050,000$

$81,0004,3004,300,000$

$920021042,000$

$105,0007203,600,000$

$112,500192480,000$

$121,0003535,000$

TOTAL

$2.$ a$)$ Perform ABC classification on these items:

Item Unit Cost Annual Volume

$1100170$

$28030$

$31560$

$4507$

$51170$

$66090$

$71060$

$8525$

$9310$

$101040$

b$)$ Find the EOQ given this information: D$=4,500$ units$/$year S$=36$ and H$=10$ per unit per year.

$3.$ The manager of an automobile repair shop hopes to achieve a better allocation of inventory control efforts by adopting ABC classification. Given the monthly usages and unit costs in the following table, classify the items into A$,$B and C categories according to monthly dollar value.

Item Monthly Usage Unit cost

$4021501,400$

$940230012$

$406640700$

$650015020$

$9280101,020$

$405080140$

$68502,00015$

$301040020$

$44007,00025$

$23071,95814$

$4.$ The following table contains the monthly usage and unit costs for a random sample of $15$ items from a list of $2,000$ inventory items at a health care facility.

a$)$ Develop an ABC Classification for these items.

b$)$ How could the manager use this information?

c$)$ After reviewing your classification scheme suppose that the manager decides to place item PO$5$ into the A category. What are some possible explanations for this decision?

Item Unit Cost Monthly Usage

K$3410200$

K$3525600$

K$3636150$

M$101625$

M$202080$

Z$4580700$

F$1420300$

F$9530800$

F$992060$

D$4510550$

D$481290$

D$5215110$

D$5740120$

N$083040$

P$0516500$

$5.$ A large bakery buys flour in $25$kg bags. The bakery uses an average of $4,860$ bags a year. Preparing an order, receiving the shipment, and paying the invoice costs $$10$ per order. Annual holding cost is $$5$ per flour bag.

a$)$ Determine the economic order quantity $($EOQ$).$

b$)$ How many orders per year will there be if EOQ is used?

c$)$ Calculate the total annual cost of ordering and holding flour based on EOQ.

d$)$ If ordering cost were to increase by $50$ percent per order, by what percentage would the EOQ change?

$6.$ A large law firm uses an average of $10$ packages of copier paper a day. Each package contains $500$ sheets. The firm operates $260$ days a year. Holding cost for the paper is $$1$ per year per package, and ordering cost is $$10$ per order.

a$.$ What order quantity would minimize total annual ordering and holding cost?

b$.$ Calculate the total annual inventory control cost using your order quantity from part a$.$

c$.$ Except for rounding, are annual ordering and holding costs equal at the EOQ?

d$.$ The office manager is currently using an order quantity of $100$ packages. The partners of the firm expect the office to be managed is a cost$-$efficient manner. Would you recommend that the office manager use the optimal order quantity instead of $100$ packages? Justify your answer.

$7.$ A flower shop uses $250$ clay pots a month. The pots are purchased for $$2$ each. Annual holding cost is estimated to be $30$ percent of purchase cost, and ordering cost is $$20$ per order. The manager has been using an order quantity of $250$ flower pots.

a$.$ Calculate the EOQ

b$.$ Calculate the EOQ$$s total annual inventory cost.

c$.$ What additional annual inventory cost is the shop incurring by using the current order quantity?

$8.$ A fresh produce distributor uses $800$ nonreturnable packing crates a month, which it purchases at a cost of $$5$ each. The manager has assigned an annual holding cost of $25$ percent of the purchase price per crate. Ordering cost is $$28$ per order. Currently the manager orders $800$ crates at a time. How much could the firm save annually in ordering and holding cost by using the EOQ?