Micro Corp.

uses
1,000 units of Chip
annually in its
production. Order
costs consist of
P10 for placing a
long-distance call
to make the order
and
P40 for delivering
the order by truck
to the company
warehouse. Each
Chip costs P100,
and the carrying
costs are estimated
at 15.625%
Micro Corp. uses
1,000 units of Chip
annually in its
production. Order
costs consist of
P10 for placing a
long-distance call
to make the order
and
P40 for delivering
the order by truck
to the company
warehouse. Each
Chip costs P100,
and the carrying
costs are estimated
at 15.625%
Micro Corp. uses
1,000 units of Chip
annually in its
production. Order
costs consist of
P10 for placing a
long-distance call
to make the order
and
P40 for delivering
the order by truck
to the company
warehouse. Each
Chip costs P100,
and the carrying
costs are estimated
at 15.625%
Micro Corp. uses
1,000 units of Chip
annually in its
production. Order
costs consist of
P10 for placing a
long-distance call
to make the order
and
P40 for delivering
the order by truck
to the company
warehouse. Each
Chip costs P100,
and the carrying
costs are estimated
at 15.625%
Cost of carrying
inventory.....................
............... P1.00 per
liter per year
Lead
time.............................
................................. 7
working days
Required: Compute
the following:
(1) Order point (OP) =
Lead Time Usage
(LTU) + Safety Stocks
(SS) = 840
(2) Average inventory
= Order Size (OS)/2 +
SS = 1000/2 + 140 =
640
(3) Maximum
inventory assuming
normal lead time and
usage/Normal
Maximum
Inventory = OP – LTU
+ OS = 840 – 700 +
1,000 = 1,140
(4) Cost of placing
one order; using EOQ;
P20
(5) Absolute
Maximum Inventory =
OP – (LT X Min
Daily Use) + OS ;
= 840 – (7 X 50) +
1,000 = 1,
Cost of carrying
inventory.....................
............... P1.00 per
liter per year
Lead
time.............................
................................. 7
working days
Required: Compute
the following:
(1) Order point (OP) =
Lead Time Usage
(LTU) + Safety Stocks
(SS) = 840
(2) Average inventory
= Order Size (OS)/2 +
SS = 1000/2 + 140 =
640
(3) Maximum
inventory assuming
normal lead time and
usage/Normal
Maximum
Inventory = OP – LTU
+ OS = 840 – 700 +
1,000 = 1,140
(4) Cost of placing
one order; using EOQ;
P20
(5) Absolute
Maximum Inventory =
OP – (LT X Min
Daily Use) + OS ;
= 840 – (7 X 50) +
1,000 = 1,
Cost of carrying
inventory.....................
............... P1.00 per
liter per year
Lead
time.............................
................................. 7
working days
Required: Compute
the following:
(1) Order point (OP) =
Lead Time Usage
(LTU) + Safety Stocks
(SS) = 840
(2) Average inventory
= Order Size (OS)/2 +
SS = 1000/2 + 140 =
640
(3) Maximum
inventory assuming
normal lead time and
usage/Normal
Maximum
Inventory = OP – LTU
+ OS = 840 – 700 +
1,000 = 1,140
(4) Cost of placing
one order; using EOQ;
P20
(5) Absolute
Maximum Inventory =
OP – (LT X Min
Daily Use) + OS ;
= 840 – (7 X 50) +
1,000 = 1,
Grey Wolf Lodge is a popular 500-room hotel in the North Woods. Managers need to keep close
tabs on all room service items, including a special pine-scented bar soap. The daily demand for the
soap is 275 bars, with a standard deviation of 30 bars. Ordering cost is $10 and the inventory
holding cost is $0.30/bar/year. The lead time from the supplier is 5 days, with a standard deviation of
1 day. The lodge is open 365 days a year.a. What is the economic order quantity for the bar of
soap?b. What should the reorder point be for the bar of soap if management wants to have a 99
percent cycle-service level?c. What is the total annual cost for the bar of soap, assuming a Q system
will be used?

SOLUTIONa.

We have D = (275)(365) = 100,375 bars of soap; S = $10; and H = $0.30.

The EOQ for the bar of soap isEOQ = =2DSH2(100,375)($10)$0.30= 6,691, = 2, or 2,587 bars