Name : Hassan abdi abshir ID: 126982

Fuculty: Business & Economic Department: Acounting & finance

1. Patterson Electronics supplies microcomputer circuitry to a company that

incorporates microprocessorsinto refrigerators and other home appliances. One
of the components has an annual demand of 250units, and this is constant
throughout the year. Carrying cost is estimated to be $1 per unit per year,
andthe ordering cost is $20 per order.
1. To minimize cost, how many units should be ordered each time an order is
placed?
2. How many orders per year are needed with the optimal policy?
3. What is the average inventory if costs are minimized?
4. Suppose the ordering cost is not $20, and Patterson has been ordering 150
units each time anorder is placed. For this order policy to be optimal, what
would the ordering cost have to be?
2. Flemming Accessories produces paper slicers used in offices and in art stores.
The minislicer has beenone of its most popular items: Annual demand is 6,750
units and is constant throughout the year.Kristen Flemming, owner of the firm,
produces the minislicers in batches. On average, Kristen can manufacture125
minislicers per day. Demand for these slicers during the production process is
30 per day.The setup cost for the equipment necessary to produce the
minislicers is $150. Carrying costs are $1 perminislicer per year. How many
minislicers should Kristen manufacture in each batch?
3. The F. W. Harris Company sells an industrial cleaner to a large number of
manufacturing plants in theHouston area. An analysis of the demand and costs
has resulted in a policy of ordering 300 units of this product every time an order
 is placed. The demand is constant, at 25 units per day. In an agreement with the
supplier, F. W. Harris is willing to accept a lead time of 20 days since the
supplier has provided an excellent price. What is the reorder point? How many
units are actually in inventory when an order should be placed?

SOLUTION

1. Given
 Annual demand { D ) = 250 units
 Carrying cost ( CH )= $1
 ordering cost (C ) = $20S
A. Q=? Q=√ 2 ( D )( C ) ÷ CH √ 2 ( 250 )( 20 ) ÷ 1 √10,000=¿100
B. O=? O=D÷ QO=250÷ 100=2.5
C. Average =? Average = Q÷ 2 , Average = 100÷ 2 ,Average = 50
D. CO=? CO= Q2(CH )÷2 D 150
2 (1)÷ 2(250)

22,500(20)÷ 2(250) 22,500(1 )÷500 22,500÷ 500 =45

2. Given
 D= 6,750 units
 CS=$150
 Daily production=30
 Daily production( P )=125
 Daily demand=30
 CH=$ 1
Q=?

Solution

2 ( D) (C) d √ 2 ( 6,750 ) ( 150 )

Q= √ ÷(1− ) ÷(1−
30 √ 2,664,473.68
) 1,643
Ch p 1 125 ❑
 3. Given
 Daily demand-25 unit
 Lead time-20 days
 ROP?
 actually in inventory?
A. ROP= Daily demand x Lead time 25x20 =500
B. B. actually in inventory = 300+500 =800

4.Given

D=4,000 C=$90 IC=10% Co =$25 Lead time -14 day Daily demand=80 unit

Required

A. Q=? B. ROP=? C. AV=? D. Annual holding cost=? E. Oder cost per year=?
F. Annual Oder cost=?

Assignment

Barbara Bright is the purchasing agent for West Valve Company. West Valve sells
industrial valves and fluid control devices. One of the most popular valves is the
Western, which has an annual demand of 4,000 units. The cost of each valve is
$90, and the inventory carrying cost is estimated to be 10% of the cost of each
valve. Barbara has made a study of the costs involved in placing an order for any
of the valves that West Valve stocks, and she has concluded that the average
ordering cost is $25 per order. Furthermore, it takes about two weeks for an order
to arrive from the supplier, and during this time the demand per week for West
valves is approximately 80. (a) What is the EOQ? (b) What is the ROP? (c) What
is the average inventory? What is the annual holding cost? (d) How many orders
per year would be placed? What is the annual ordering cost?
 Solution

A. Q=√ 2 ( D )( C ) ÷ IC
√2 ( 4,000 )( 25 ) √200,000 22,222.22 =149.07
0.1(90) 9
√

B. ROP =Daily demand x Time lead = 80x2 =160

C. Av =Q÷2 149.07÷ 2 =74.53
D. Ordering cost Q÷2 X IC =149.07÷ 2 ( 9 )=¿670.53
E. Oder per year = Annual demand ÷ Q =4,000÷ 149.07=26.83
F. Annual Oder Cost = Annual demand
÷ Q ( Co ) =4,000 ÷ 149.07 ( 25 ) 26.83 x 25=670.83