14.2 a. What is the EOQ?

D = 200,000 units per year

S = 96 $ per order
C = .30(37.50) = 11.25 $ carrying cost per year per unit held

2DS
EOQ 
C

2(200,000) (96)

.30(37.50 )

 1,847.52 or 1,848 units

b. What is the TSC at the EOQ?

TSC = CQ/2 + SD/Q

= .30(37.50)(1848)/2 + 96(200,000)/1848

= 10,395.00 + 10,389.61

= $20,784.61

c. How much would the TSC increase if the order quantity must be 2,500
units because of a standard shipping-container size?

TSC = CQ/2 + SD/Q

= .30(37.50)(2500)/2 + 96(200,000)/2500

= 14,062.50 + 7,680

= $21,742.50

So TSC would increase by (21,742.50 – 20,784.61) = $957.89.

14.4 a. How much should Linda order from the Federal Reserve Board each
time a cash order is placed?

D = 5,000,000 $ per month

S = 675 $ per order
C = .0065(1.00) = .0065 $ carrying cost per month per $ held
(D and C are both given in months)

2DS
EOQ 
C

2(5,000,00 0)(675)

.0065(1.00 )

 $1,019,049 .33

b. What is the expected total annual carrying cost plus ordering cost?

TSC = 12CQ/2 + 12SD/Q

= 12(.0065)(1.00)(1,019,049.33)/2 + 12(675)
(5,000,000)/1,019,049.33

= 39,742.92 + 39,742.92

= $79,485.84

c. How many working days should one shipment of cash last First City
Bank?

250[Q/(12D)] = 250[1,019,049.33/(12*5,000,000)] = 4.25 working days

14.5 a. How many boxes of sterile bandages should be ordered each time an
order is placed?
 D = 12(3,500) = 42,000 boxes per year
S = 25 $ per order
C = 2.90 $ carrying cost per year per box held

2DS
EOQ 
C

2(42,000)( 25)

2.90

 850.96 or 851 boxes

b. How many orders per year should be expected?

D/Q = 42,000/851 = 49.35 orders per year

c. What is the expected TSC per year?

TSC = CQ/2 + SD/Q

= 2.90(851)/2 + 25(42,000)/851

= 1,233.95 + 1,233.84

= $2,467.79

d. How many days should one order last, on average?

365(Q/D) = 365(851/42,000) = 7.4 days

14.10 a. How many cases of bags should the store order each time?

D = 2,300 cases per year

 S = 65 $ per order
C = .35(ac) $ carrying cost per year per case held

First, compute the EOQ at each acquisition cost level:

EOQ i  2DS /[C i ]

For ac 1  $129.95 :
EOQ1  2( 2300 )( 65 ) /[.35(129.95 )]  81.08 or 81 cases (infeasible)

For ac 2  $127.95 :
EOQ 2  2( 2300 )(65 ) /[.35(127 .95 )]  81.71 or 82 cases (feasible)

For ac 3  $126.95 :
EOQ 3  2( 2300 )(65 ) /[.35(126 .95 )]  82.03 or 82 cases (infeasible)

For ac 4  $125.95 :
EOQ 4  2( 2300 )( 65 ) /[.35(125 .95 )]  82.36 or 82 cases (infeasible)

Next, check the total inventory cost for 82 cases @ $127.95, for 250
cases @ $126.95, and for 1000 cases @ $125.95:

TC = CQ/2 + SD/Q + D(ac)

For 82 cases @ $127.95 :

TC = .35(127.95)(82)/2 + 65(2300)/82 + 2300(127.95)
= 1,836.08 + 1,823.17 + 294,285.00
= $ 297,944.25

For 250 cases @ $126.95 :

TC = .35(126.95)(250)/2 + 65(2300)/250 + 2300(126.95)
= 5,554.06 + 598 + 291,985.00
= $ 298,137.06

For 1000 cases @ $125.95 :

TC = .35(125.95)(1000)/2 + 65(2300)/1000 + 2300(125.95)
= 22,041.25 + 149.50 + 289,685.00
= $ 311,875.75

14.10 The store should order 82 dozen at a cost of $127.95 for each case.
b. What would be the resulting total inventory cost per year (ordering plus
carrying plus materials cost)?

TC = $ 297,944.25

c. How many orders per year should be expected?

D/Q = 2,300 / 82 = 28.05 orders per year

d. What is the expected maximum inventory level of paper bags (in

cases)?

Maximum inventory = Q = 82 cases

e. If the store has only enough storage space for 200 cases of bags, how
many should it order each time?

If the maximum inventory level cannot exceed 200 cases, then the best
order quantity would still be 82 cases at $18.95 per case.
Case: Green Garden Products

D = 1.1(1,040)(12) = 13,728 cubes (expected demand next year)

S = 80 $ per order
ac = 6.20 $ per cube
C = .35(6.20) = 2.17 $ carrying cost per year per cube held
d = 1.1(40) = 44 cubes (expected daily demand)
LT = 4 days
DDLT = 60 cubes
SL = 90% (desired service level)
Working days = 12(26) = 312 days

1. Using the EOQ model, how many cubes of peat moss should be ordered
each time?

2DS 2(13,728 )(80)

EOQ  
C .35(6.20)

= 1,006 cubes per order

2. What is the expected annual inventory cost (carrying plus ordering plus
material costs)?

TC = CQ/2 + SD/Q + D(ac)

= .35(6.20)(1,006)/2 + 80(13,728)/1,006 + 13,728(6.20)

= 1,091.51 + 1,091.69 + 85,113.60

= $ 87,296.80

3. How many orders should be expected next year, and how many working days
should one order last?

D/Q = 13,728/1,006 = 13.646 orders per year

312(Q/D) = 312(1,006/13,728) = 22.86 working days

Case: Green Garden Products Continued

4. What level of safety stock should be used, and what should be the order
point?

90% service level  Z = 1.28 (from Appendix A)

SS = ZDDLT = 1.28(60) = 76.8 or 77 cubes

EDDLT = LT(d) = 4(44) = 176 cubes

OP = EDDLT + SS = 176 + 77 = 253 cubes

5. If the order point were set at 200 cubes, what service level would this provide
during the replenishment lead time?

OP = EDDLT + SS = EDDLT + ZDDLT

ZDDLT = OP – EDDLT

Z = (OP – EDDLT)/DDLT

= (200 – 176)/60

= 0.40

Look up Z=.40 in Appendix A. The corresponding probability in the middle of

the table is 0.65542, which is the probability of actual demand during the lead
time being less than 200, and not stocking out. So, the service level would be
65.5%.