Problem 1. ProTech Electronics supplies microcomputer circuitry to a company that incorporates microprocessors into refrigerators and other home appliances. One of the components has an annual demand of 250 units, and this is constant throughout the year. Carrying cost is estimated to be $1 per unit per year, and the ordering (setup) cost is $20 per order. To minimize cost, how many units should be ordered each time an order is placed? How many orders per year are needed with the optimal policy? What will be the maximum inventory level? What is the cycle length (time between orders) when orders are placed using the EOQ quantity? What is the average inventory if costs are minimized? Suppose that the ordering (setup) cost is not $20, and ProTech has been ordering 150 units each time an order is placed. For this order policy (of Q = 150) to be optimal, determine what the ordering (setup) cost would have to be

Problem 2. Annual demand for the notebook binders at Duncans Stationery Shop is 10,000 units. Dana Duncan operates her business 300 days per year and finds that deliveries from her supplier generally take 5 working days. Calculate the reorder point for the notebook binders that she stocks. Why is this number important to Duncan?

Problem 3. A law office has traditionally ordered ink refills 60 units at a time. The firm estimates that carrying cost is 40% of the $10 unit cost and that annual demand is about 240 units per year. The assumptions of the basic EOQ model are thought to apply. For what value of ordering cost would its action be optimal? If the true ordering cost turns out to be much greater than your answer to (a), what is the impact on the firms ordering policy?

Problem 4. Wang Distributors has an annual demand for an airport metal detector of 1,400 units. The cost of a typical detector to Wang is $400. Carrying cost is estimated to be 20% of the unit cost, and the ordering cost is $25 per order. If Ping Wang, the owner, orders in quantities of 300 or more, he can get a 5% discount on the cost of the detectors. Should Wang take the quantity discount?