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,
Solved Problem 3A regional distributor purchases discontinued appliances from various

suppliers and then sells them on demand to retailers in the region. The distributor

operates 5 days per week, 52 weeks per year. Only when it is open for business can

orders be received. Management wants to reevaluate its current inventory policy, which

calls for order quantities of 440 counter-top mixers. The following data are estimated for

the mixer:Average daily demand (d) = 100 mixersStandard deviation of daily demand

(σd) = 30 mixersLead time (L) = 3 daysHolding cost (H) = $9.40/unit/yearOrdering cost

(S) = $35/orderCycle-service level = 92 percentThe distributor uses a continuous review

(Q) systemCopyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.

a. What order quantity Q, and reorder point, R, should be used?b. What is the total

annual cost of the system?c. If on-hand inventory is 40 units, one open order for 440

mixers is pending, and no backorders exist, should a new order be placed?