QUESTION $1$:

Dream Resorts makes wine, which it bottles and sells in its on$-$location Restaurant$/$Wine

Shop. It costs $$1100$ to set up$,$ brew and bottle a batch of the wine. The annual cost to

store the wine is $$2\mathrm{.}75$ per bottle. The annual demand for the wine is $16,000$ bottles and

the winery has the capacity to produce $28,000$ bottles annually. The current production

policy is to continue producing the wine until the storage gets full. The storage holds a

maximum of $750$ bottles of wine. Production starts again when the inventory of wine is

depleted. $($assume one year $=365$ days$).$

Required:

A$.$ The owners of Dream Resorts are considering an option of increasing the wine storage

space to hold a maximum of $3000$ bottles as part of their expansion strategy for the next

five years. Is this a good option in terms of the cost savings? Be quantitative.

$(15$ marks$)$

B$.$ What would be an optimal production policy for the winery? How does the optimal policy

compare to the initial idea of expanding the storage space to hold a maximum of $3000$

bottles in terms of the cost savings? What action should management take to implement

the optimal production policy when compared to the current policy of producing the wine

until the storage is full?

$(10$ marks$)$

$[$TOTAL: $25$ MARKS$]$

$4|$ P a g e

QUESTION $2$:

The determination of lot sizes in an MRP system is a complicated and difficult problem. Lot

sizes are the part quantities issued in the scheduled receipt and planned$-$order release

sections of an MRP schedule. For parts produced in$-$house, lot sizes are the production

quantities of batch sizes. For purchased parts, these are the quantities ordered from the

supplier. Consider the following data relevant to an MRP lot$-$sizing problem:

Item cost per Unit

Setup cost

Inventory carrying cost per year

Weekly Net Requirement

$$25$

$$100$

$20\mathrm{.}8\%$

$12345678$

$10580130500200125100$

Use Economic Order Quantity $($EOQ$)$ and Part Period Balancing $($PPB$)$ lot$-$sizing rules to

propose an MRP schedule under each rule. Which one do you recommend? Assume there

is no beginning inventory and there are $52$ weeks in the year.