Problem Set

Inventory Management: EOQ

Emma$$s Home Store sells beds and other home goods. Her winning product has an annual

demand of $400$ units. Ordering cost is $$40$ and holding cost is $$5$ per unit per year. To minimize

the total cost, how many units should be ordered each time an order is placed?

Inventory Management: POQ

Alfa Car Manufacturer produces parts at a rate of $300$ daily and uses these parts at a rate of

$12500$ per year $(250$ working days$).$ Holding costs are $$2$ per unit per year and ordering costs are

$$30$ per order.

a$)$ What is the economic production quantity?

b$)$ How many production runs per year will be made?

c$)$ What will be the maximum inventory level?

d$)$ What percentage of time will the facility be producing parts?

e$)$ What is the total annual cost?

Inventory Management: Order Quantity Discount Model

A laptop company purchases integrated chips at $$350$ per chip. The interest rate is $10\%$ per unit

per year, the ordering cost is $$120$ per order, and sales are steady, at $400$ per month. The

company$$s supplier decides to offer price discounts to attract large orders and the price structure

is shown below.

Quantity Purchased Price$/$Unit

$1-99$ units $$350$

$100-199$ units $$325$

$200$ or more units $$300$