1. Problems

1. The annual demand, ordering cost, and the inventory carrying cost rate for a certain item are D = 600 units, S = $10/order and I = 30% of item price. Price is established by the following quantity discount schedule. What should the order quantity be in order to minimize the total annual cost? When we use the quantity discount model, what are the two basics elements to take into consideration? Why?

Quantity	1 to 49	50 to 249	250 and up
Price	$5.00 per unit	$4.50 per unit	$4.10 per unit

2. Herbert Adams sells bicycles. One particular model is highly popular with annual sales of 200

units per year. The cost of one such bicycle is $800.00. Annual holding costs are 25% of the

item's cost, and the ordering cost is $40. The store is open 250 days a year. The lead time is

10 days.

a. What is the economic order quantity?

b. What is the optimal number of orders?

c. What is the optimal number of days between orders?

d. What are the annual total costs?

e. What is the reorder point for this product?

f. Explain whats mean this reorder point?

3. Montegut Manufacturing produces a product for which the annual demand is 10,000. Production averages 100 per day, while demand is 40 per day. Holding costs are $1.00 per unit per year; set-up costs $200.00. If they wish to produce this product in economic batches, what size batch should be used? How much does management of this good is spent in inventory cost for the firm each year? Whats the level of capacity the firm is producing? Explain the denominator of the formula used in this exercise.