Ques: Two inventory policies have been suggested by purchasing department of a company.

To o
second policy says to order 200 units with the reorder point of 75 units and the time between pla
is 0.02 dollor. Which of the two policies should the company adopt?

Answer:
policy 1:
Ordered quantity 150 units
Reorder point 50 units
Lead time 10 day
Demand rate 5
Ordering Cost per order 20 dollar
IHC per unit 0.02 dollar
Total ordering cost 0.666667
Total IHC 1.5
Total cost 2.166667

From the above graph we can see the total ordering cost and total inventory holding cost inte
Hence policy 1 gives the optimum value of total cost at 2.166667
policy 2:-
Order quantity 200 units
Reorder point 75 units -0.55
Lead time 15 days -0.5
Demand rate 5 -0.45
Ordering cost per order 20 dollar -0.4
IHC per unit 0.02 dollar -0.35
Total ordering cost 0.5 -0.3
Total IHC 2 -0.25
Total cost = 2.5 -0.2
-0.15
-0.1
-0.5
0
0.5
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
0.55

From the above graph we conclude that total ordering cost and total inventory holding cost intersect at

Since we are having the minimum value of the total cost in policy 1 so we suggest company to adopt po
tment of a company. To order 150 units the reorder point is 50 units and the time between placinng and rece
and the time between placing and receiving order is 15 days. The setup ccost per order is 20 dollor. The holdin

Q Total A Total H=IC Total cost

-0.55 67.5 1.481481 0.675 2.156481

-0.5 75 1.333333 0.75 2.083333 3

-0.45 82.5 1.212121 0.825 2.037121

-0.4 90 1.111111 0.9 2.011111
2.5
-0.35 97.5 1.025641 0.975 2.000641
-0.3 105 0.952381 1.05 2.002381
-0.25 112.5 0.888889 1.125 2.013889 2
-0.2 120 0.833333 1.2 2.033333
-0.15 127.5 0.784314 1.275 2.059314
-0.1 135 0.740741 1.35 2.090741 1.5
-0.5 75 1.333333 0.75 2.083333
0 150 0.666667 1.5 2.166667
1
0.05 157.5 0.634921 1.575 2.209921
0.1 165 0.606061 1.65 2.256061
0.15 172.5 0.57971 1.725 2.30471 0.5
0.2 180 0.555556 1.8 2.355556
0.25 187.5 0.533333 1.875 2.408333
0.3 195 0.512821 1.95 2.462821 0
50 100
0.35 202.5 0.493827 2.025 2.518827
0.4 210 0.47619 2.1 2.57619 Total A
0.45 217.5 0.45977 2.175 2.63477
0.5 225 0.444444 2.25 2.694444
0.55 232.5 0.430108 2.325 2.755108

tal inventory holding cost intersect at the minimum value of total cost.

Q Total A Total IC Total cost

90 1.111111 0.9 2.0111111
100 1 1 2 4

110 0.909091 1.1 2.0090909

120 0.833333 1.2 2.0333333 3.5
130 0.769231 1.3 2.0692308
140 0.714286 1.4 2.1142857 3

2.5
 3.5

3
150 0.666667 1.5 2.1666667
160 0.625 1.6 2.225
2.5
170 0.588235 1.7 2.2882353
180 0.555556 1.8 2.3555556
2
100 1 1 2
200 0.5 2 2.5
300 0.333333 3 3.3333333 1.5

220 0.454545 2.2 2.6545455

230 0.434783 2.3 2.7347826 1
240 0.416667 2.4 2.8166667
250 0.4 2.5 2.9 0.5
260 0.384615 2.6 2.9846154
270 0.37037 2.7 3.0703704
0
280 0.357143 2.8 3.1571429 50 100 150 200
290 0.344828 2.9 3.2448276 Total A Total I
300 0.333333 3 3.3333333
310 0.322581 3.1 3.4225806

tory holding cost intersect at the minimum value of total cost. Thus, policy 2 gives the optimim value of total cost at 2.5

suggest company to adopt policy 1 for inventory.

een placinng and receiving an order is 10 days. The
s 20 dollor. The holding cost pper unit inventory per day

100 150 200 250

Total A Total IC Total Cost

 150 200 250 300 350

Total A Total IC Total cost

of total cost at 2.5

 Ques: Verma store comprises pallates empty merchandise cartoon for recycling. The store generates 5 pallates a d
company that moves the pallate to the recycling centre charges are of 100 dollors plus a variable transportation co
devise an optimal policy that for having the paallates to the recycling centre.

Answer: Demand rate 5 pallates a day

Inventory holding cost 0.1 dollar -0.55
Ordering cost per order 100 dollar -0.5
Optimum ordered quantity 100 -0.45
Total ordering cost 5 -0.4
Total inventory holding cost 5 -0.35
Time period(T*) 20 -0.3
Number of orders(n) 5 -0.25
Transportation cost per unit 3 dollar -0.2
Total transportation cost 15 -0.15
Total Cost 25 -0.1
-0.5
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
0.55

From the above graph we conclude that comprising all the three costs inventory holding cost, ordering cost a
 generates 5 pallates a day. The cost of storing a pallate in store backlot is 0.1 dollor per day. The
ariable transportation cost of 3 dollor per pallate. Graph the change in number of pallates with time and

Q Total A Total H=ICTotal T0 Total Cost

45 11.11111 2.25 6.75 20.11111
50 10 2.5 7.5 20
55 9.090909 2.75 8.25 20.09091 40
60 8.333333 3 9 20.33333
65 7.692308 3.25 9.75 20.69231
35
70 7.142857 3.5 10.5 21.14286
75 6.666667 3.75 11.25 21.66667
80 6.25 4 12 22.25 30
85 5.882353 4.25 12.75 22.88235
90 5.555556 4.5 13.5 23.55556 25
50 10 2.5 7.5 20
100 5 5 15 25
20
105 4.761905 5.25 15.75 25.7619
110 4.545455 5.5 16.5 26.54545
115 4.347826 5.75 17.25 27.34783 15
120 4.166667 6 18 28.16667
125 4 6.25 18.75 29 10
130 3.846154 6.5 19.5 29.84615
135 3.703704 6.75 20.25 30.7037
140 3.571429 7 21 31.57143 5

145 3.448276 7.25 21.75 32.44828

150 3.333333 7.5 22.5 33.33333 0
20 40 60 80 100
155 3.225806 7.75 23.25 34.22581
Total A Total H=IC Tota

ding cost, ordering cost and transportation cost we get the optimum value of total cost at 25.
 80 100 120 140 160 180

lA Total H=IC Total T0 Total Cost

 Q:- McBurger orders ground meat at the start of each week to cover the week's demand of 300 lb. The fixed cost per order
refrigerate and store the meat.
(a) Determine the inventory cost per week of the present order policy.
(b) Determine the optimal inventory policy that McBurger should use assuming zero lead time between the placement and

Q total A total H

-0.55 107.5725 55.77634 11.29511

-0.5 119.525 50.1987 12.55013
-0.45 131.4775 45.63518 13.80514
-0.4 143.43 41.83225 15.06015
-0.35 155.3825 38.61439 16.31516
Ordering cost, A $20 per order -0.3 167.335 35.85622 17.57018
Demand rate, D 300 units -0.25 179.2875 33.4658 18.82519
Inventory carring cost, IC 0.21 per lb per week -0.2 191.24 31.37419 20.0802
-0.15 203.1925 29.52865 21.33521
Optimal Q 239.0457 units -0.1 215.145 27.88817 22.59023
-0.05 227.0975 26.42037 23.84524
0 239.05 25.1 25.1
0.05 251.0025 23.90414 26.35526
total ordering cost AD/Q 25.0998 per week 0.1 262.955 22.81759 27.61028
0.15 274.9075 21.82552 28.86529
total inventory carrying cost ICQ/ 25.0998 per week 0.2 286.86 20.91613 30.1203
0.25 298.8125 20.07948 31.37531
0.3 310.765 19.30719 32.63033
Total cost TC(Q) 50.1996 per week 0.35 322.7175 18.59211 33.88534
0.4 334.67 17.92811 35.14035
0.45 346.6225 17.3099 36.39536
0.5 358.575 16.7329 37.65038
0.55 370.5275 16.19313 38.90539
00 lb. The fixed cost per order is $20. It costs about $0.03 per lb per day to

e between the placement and receipt of an order.

A+IC
80
67.07145
62.74883
59.44032 70
56.8924
54.92955
60
53.42639
52.29099
51.45439 50
50.86386
50.47839 Total A
40
Total IC
50.26561
Total A+IC
50.2
50.25941 30
50.42787
50.69081 20
51.03643
51.45479
10
51.93752
52.47745
53.06846 0
53.70526 50 100 150 200 250 300 350 400
54.38328
55.09852
Total A
Total IC
Total A+IC
 Q:- A company stocks an item that is consumed at the rate of 50 units per day. It costs the company $20 each time an orde
the stock for a week will cost $0.35.
(a) Determine the optimum inventory policy, assuming a lead timeof 1 week.
(b) Determine the optimum number of orders per year.(

Q total A total IC sum A+IC

-0.5 100 10 2.5 12.5

Inventory holding cost, IC 0.05 -0.45 110 9.090909 2.75 11.84091
Demand rate, D 50 -0.4 120 8.333333 3 11.33333
-0.35 130 7.692308 3.25 10.94231
Ordering cost, A 20 -0.3 140 7.142857 3.5 10.64286
-0.25 150 6.666667 3.75 10.41667
Optimal Q 200 -0.2 160 6.25 4 10.25
-0.15 170 5.882353 4.25 10.13235
total ordering cost AD/Q 5 -0.1 180 5.555556 4.5 10.05556
total inventory carrying cost ICQ/2 5 -0.05 190 5.263158 4.75 10.01316
0 200 5 5 10
No. of orders, n 91.25 0.05 210 4.761905 5.25 10.0119
0.1 220 4.545455 5.5 10.04545
0.15 230 4.347826 5.75 10.09783
0.2 240 4.166667 6 10.16667
0.25 250 4 6.25 10.25
0.3 260 3.846154 6.5 10.34615
0.35 270 3.703704 6.75 10.4537
0.4 280 3.571429 7 10.57143
0.45 290 3.448276 7.25 10.69828
0.5 300 3.333333 7.5 10.83333
ny $20 each time an order is placed. An inventory unit held in

14

12

10

8
total A
total IC
6
total

0
50 100 150 200 250 300 350
 Ques- A commodity is to be supplied at a constant rate of 200 units/day. Supplies of any amounts can be had at
rupees/unit/day while the delay in supply of the item induces a penalty of 10 rupees/unit/delay of one day. Find
(a) Optimal policy which included optimal order quantity and reorder cycle period
(b) What would be the best policy if the penalty cost becomes infinity

Answer Q Total A

-0.55 49.29503 202.8602

-0.5 54.77226 182.5742
Demand rate(D) 200 units -0.45 60.24948 165.9765
-0.4 65.72671 152.1452
Ordering cost(A) 50 rupees -0.35 71.20393 140.4417
-0.3 76.68116 130.4101
Inventory holding cost(H) 2 rupees/unit/day -0.25 82.15838 121.7161
-0.2 87.63561 114.1089
Shortage cost(S) 10 rupees/unit/delay of one day -0.15 93.11283 107.3966
-0.1 98.59006 101.4301
Q* 109.5445 units -0.05 104.0673 96.09168
0 109.5445 91.28709
Total cost 182.5742 rupees 0.05 115.0217 86.94009
0.1 120.499 82.98827
Total ordering cost 91.28709 rupees 0.15 125.9762 79.38008
0.2 131.4534 76.07258
Re-order cycle period 0.547723 0.25 136.9306 73.02967
0.3 142.4079 70.22084
For penalty cost to be infinity 0.35 147.8851 67.62007
Q 100 0.4 153.3623 65.20507
TC 200 0.45 158.8395 62.95662
0.5 164.3168 60.85806
0.55 169.794 58.8949
Total cost in case1 is less than the total cost in case2 ,So case1 is the optimal policy
total ordering cost 91.28709

Im 91.28709
Is 18.25742

Total H 91.28709
Total S 91.28709
 any amounts can be had at any required time but each ordering cost is 50 rupees. Cost of holding the commodity in inventory i
s/unit/delay of one day. Find the following-

Total H Im Is Total S Total cost

49.29503 41.07919 8.215838 41.07919181 293.2344285

54.77226 45.64355 9.128709 45.64354646 282.989988 400
60.24948 50.2079 10.04158 50.2079011 276.433915
65.72671 54.77226 10.95445 54.77225575 272.6441175 350
71.20393 59.33661 11.86732 59.3366104 270.9822243
76.68116 63.90097 12.78019 63.90096504 270.9922558 300
82.15838 68.46532 13.69306 68.46531969 272.3398272
87.63561 73.02967 14.60593 73.02967433 274.7741497
250
93.11283 77.59403 15.51881 77.59402898 278.1034437
98.59006 82.15838 16.43168 82.15838363 282.1785472
200
104.0673 86.72274 17.34455 86.72273827 286.881701
109.5445 91.28 18.26451 91.32255751 292.1541619
115.0217 95.85145 19.17029 95.85144756 297.8132731 150
120.499 100.4158 20.08316 100.4158022 303.9030311
125.9762 104.9802 20.99603 104.9801569 310.3364259 100
131.4534 109.5445 21.9089 109.5445115 317.0705027
136.9306 114.1089 22.82177 114.1088661 324.0691799 50
142.4079 118.6732 23.73464 118.6732208 331.3019264
147.8851 123.2376 24.64752 123.2375754 338.7427348 0
153.3623 127.8019 25.56039 127.8019301 346.3693126 40 60 80 100 120
Total A Total H Total S
158.8395 132.3663 26.47326 132.3662847 354.1624422
164.3168 136.9306 27.38613 136.9306394 362.1054686
169.794 141.495 28.299 141.494994 370.1838855
g the commodity in inventory is 2

80 100 120 140 160 180

Total H Total S Total cost
 Ques- The demand for product is 25 units/month and the items are withdrawn uniformly. The setup cost each tim
rupees/item/month. Determine how often to make production run if shortages are not allowed and also determi
rupees/item/month. Also find out optimal order policy in both the cases.

Answer
Total Q Total A Total H

-0.55 24.64752 15.21452 3.697127

Demand rate(D) 25 units -0.5 27.38613 13.69306 4.107919
-0.45 30.12474 12.44824 4.518711
Ordering cost(A) 15 rupees -0.4 32.86335 11.41089 4.929503
-0.35 35.60197 10.53313 5.340295
Inventory holding cost(H) 0.3 rupees -0.3 38.34058 9.78076 5.751087
-0.25 41.07919 9.128709 6.161879
Shortage cost(S) 1.5 rupees -0.2 43.8178 8.558165 6.572671
-0.15 46.55642 8.054743 6.983463
Q* 54.77226 units -0.1 49.29503 7.607258 7.394255
-0.05 52.03364 7.206876 7.805046
Total ordering cost 6.846532 0 54.77226 6.846814 8.2155
0.05 57.51087 6.520507 8.62663
Total inventory holding cost 8.215838 0.1 60.24948 6.22412 9.037422
0.15 62.98809 5.953506 9.448214
Total cost 13.69306 rupees 0.2 65.72671 5.705443 9.859006
0.25 68.46532 5.477226 10.2698
0.3 71.20393 5.266563 10.68059
When shotages are not allowed 0.35 73.94255 5.071505 11.09138
0.4 76.68116 4.89038 11.50217
Q* 50 0.45 79.41977 4.721746 11.91297
Total cost 15 0.5 82.15838 4.564355 12.32376
0.55 84.897 4.417117 12.73455

total setup or ordering cost 6.846532

total inventory holding cost 6.846532
total shortage cost 6.846532

Im 45.64355
Is 9.128709
mly. The setup cost each time a production run is 15 rupees. The inventory holding cost is 0.30
ot allowed and also determine how often to make production run if shortage cost is 1.50

Im Is Shortage cost Total cost

30
20.5396 4.107919 3.080939386 21.99258214
22.82177 4.564355 3.4232659844 21.2242491
25.10395 5.02079 3.7655925828 20.73254363 25
27.38613 5.477226 4.1079191813 20.44830881
29.66831 5.933661 4.4502457797 20.32366682
20
31.95048 6.390097 4.7925723782 20.32441919
34.23266 6.846532 5.1348989766 20.42548704
36.51484 7.302967 5.4772255751 20.60806123 15
38.79701 7.759403 5.8195521735 20.85775827
41.07919 8.215838 6.1618787719 21.16339104
43.36137 8.672274 6.5042053704 21.51612757 10
45.64 9.132256 6.8491918129 21.91150581
47.92572 9.585145 7.1888585673 22.33599548 5
50.2079 10.04158 7.5311851657 22.79272734
52.49008 10.49802 7.8735117641 23.27523194
54.77226 10.95445 8.2158383626 23.78028771 0
20 30 40 50 60
57.05443 11.41089 8.558164961 24.30518849
59.33661 11.86732 8.9004915595 24.84764448 Total A Total H Shortage cost
61.61879 12.32376 9.2428181579 25.40570511
63.90097 12.78019 9.5851447563 25.97769844
66.18314 13.23663 9.9274713548 26.56218317
68.46532 13.69306 10.269797953 27.15791014
70.7475 14.1495 10.612124552 27.76379141
 50 60 70 80 90

Total H Shortage cost Total cost

item Annual usage item cost/unit annual usage cumulative auv % value of annual usage

I 1500 45 67500 67500 25.0231696014829

G 5000 9 45000 112500 16.6821130676552
D 200 200 40000 152500 14.8285449490269
A 800 40 32000 184500 11.8628359592215
C 1600 15 24000 208500 8.89712696941613
H 10000 1.5 15000 223500 5.56070435588508
J 6000 2.5 15000 238500 5.56070435588508
F 2250 6 13500 252000 5.00463392029657
B 500 12 6000 258000 2.22428174235403
K 1000 5 5000 263000 1.85356811862836
E 150 25 3750 266750 1.39017608897127
L 750 4 3000 269750 1.11214087117702

29750 269750 120

100

80

cumulative % auv
60

40

20

0
0 20
 cumulative % auv % of demand cumualtive % of demand

25.023169601483 5.042016806723 5.04201680672269

41.705282669138 16.80672268908 21.8487394957983
56.533827618165 0.672268907563 22.5210084033613
68.396663577387 2.689075630252 25.2100840336134
77.293790546803 5.378151260504 30.5882352941177
82.854494902688 33.61344537815 64.2016806722689
88.415199258573 20.16806722689 84.3697478991597
93.419833178869 7.563025210084 91.9327731092437
95.644114921223 1.680672268908 93.6134453781513
97.497683039852 3.361344537815 96.9747899159664
98.887859128823 0.504201680672 97.4789915966386
100 2.521008403361 100

120

100

80
cumulative % auv

60

40

20

0
0 20 40 60 80 100 120
cumualtive % of demand
item Demand item cost/unit annual usage cumulative auv

A 8500 10 85000 85000

B 125000 3 375000 460000
C 2000 1.5 3000 463000
D 5000 120 600000 1063000
E 30000 15 450000 1513000
F 1500 4 6000 1519000
G 50000 2 100000 1619000
H 4000 30 120000 1739000
I 3000 5 15000 1754000
K 10000 7.5 75000 1829000

239000 1829000

120

100

80

cumulative % auv
60

40

20

0
0 20 40 60
cumualtive % of dem
 % value of annual usage cumulative % auv % of demand cumualtive % of demand

4.6473482777474 4.6473482777474 3.55648535565 3.55648535564854

20.5030071077091 25.1503553854565 52.3012552301 55.8577405857741
0.164024056861673 25.3143794423182 0.83682008368 56.6945606694561
32.8048113723346 58.1191908146528 2.09205020921 58.7866108786611
24.603608529251 82.7227993439038 12.5523012552 71.3389121338912
0.328048113723346 83.0508474576271 0.62761506276 71.9665271966527
5.46746856205577 88.5183160196829 20.9205020921 92.8870292887029
6.56096227446692 95.0792782941498 1.67364016736 94.5606694560669
0.820120284308365 95.8993985784582 1.25523012552 95.81589958159
4.10060142154183 100 4.18410041841 100

120

100

80

60

40

20

0
0 20 40 60 80 100 120
cumualtive % of demand
 Q :- A company can produce an item or buy it from a contractor.If it is produced,it will cost $
production rate is 100 units per day. If it is bought from a contractor, it will cost $15 each tim
the item in stock, hether bought or produced, is $.02 per unit per day. The company's usag
annually. Assuming that no shortage is allowed, should the company buy or produce?

Consumption Rate (R) 26000 items per year Demand Rate(D) 26000
Prounction Rate(K) 36500 items per year
Ordering Cost(A) 20 per setup Ordering Cost(A) 15

Inventory Carrying Cost 7.3 per item per year Inventory Carrying Cost

Optimal Q,Q* 703.7316 items Optimal Q,Q* 326.8781

Total Ordering Cost 738.9181 per year Total Ordering Cost

Total Invnetory Carrying Cost 738.9181 per year Total Invnetory Carrying Cost

Total cost,TC(Q) 1477.836 per year Total cost 2386.21

 r.If it is produced,it will cost $20 each time the machines are set up. The
actor, it will cost $15 each time an order is placed. The cost of maintaining
per day. The company's usage of the item is estimated at 26,000 units for buying
mpany buy or produce? H TC
-0.4 0.869004 823.3002
-0.35 1.44834 1062.876
-0.3 2.228216 1318.335
items per year -0.25 3.183165 1575.712
-0.2 4.24422 1819.476
per setup -0.15 5.305275 2034.236
-0.1 6.2415 2206.438
7.3 per item per year -0.05 6.935 2325.79
0 7.3 2386.21
items 0.05 7.665 2445.138
0.1 8.4315 2564.482
0.15 9.696225 2750.101
1193.105 per year 0.2 11.63547 3012.585
1193.105 per year 0.25 14.54434 3368.172
0.3 18.90764 3840.307
per year 0.35 25.52531 4462.034
0.4 35.73544 5279.549
0.45 51.81638 6357.419

for production

H Q
-0.4 0.869004 2039.659
-0.35 1.44834 1579.913
-0.3 2.228216 1273.767
-0.25 3.183165 1065.71
-0.2 4.24422 922.9316
-0.15 5.305275 825.4951
-0.1 6.2415 761.0689
-0.05 6.935 722.0133
0 7.3 703.7316
0.05 7.665 686.7717
0.1 8.4315 654.8111
0.15 9.696225 610.6145
0.2 11.63547 557.4122
0.25 14.54434 498.5646
0.3 18.90764 437.2701
0.35 25.52531 376.3422
0.4 35.73544 318.0672
0.45 51.81638 264.1404
for buying
Q OC 7000
947.4066 411.6501
733.858 531.438
6000
591.6552 659.1677
495.0143 787.8561
428.6949 909.7378 5000
383.4364 1017.118
353.5109 1103.219 4000
335.3699 1162.895
TC
326.8781 1193.105 Q
3000
319 1222.569
304.1549 1282.241
283.6259 1375.05 2000
258.9139 1506.292
231.5796 1684.086 1000
203.1088 1920.154
174.8082 2231.017
0
147.7399 2639.775 0 10 20 30 40 50 60
122.6913 3178.71

for production

TC OC ICC
509.8892 254.9446 254.9446 4500
658.2641 329.132 329.132
816.4761 408.2381 408.2381 4000
975.8756 487.9378 487.9378
3500
1126.844 563.422 563.422
1259.85 629.925 629.925 3000
1366.499 683.2496 683.2496
1440.417 720.2083 720.2083 2500
1477.836 738.9181 738.9181
2000
1514.332 757.1658 757.1658
1588.244 794.1222 794.1222 1500
1703.202 851.6011 851.6011
1865.765 932.8823 932.8823 1000
2085.988 1042.994 1042.994
500
2378.393 1189.196 1189.196
2763.442 1381.721 1381.721 0
3269.749 1634.875 1634.875 0 10 20 30 40 50 60
3937.299 1968.65 1968.65
 TC
Q

50 60

Q
TC

0 50 60
 Q :- Demand for an item is 500 units a month, while the production rate is 1,000 units a month. Unit cost is $10, batc
month. What is the optimal batch size and corresponding cost? If the production rate can be varied, how will the cost
 

Consumption Rate,R 500 items h q

Prounction Rate,K 1000 items
Ordering Cost,A 2000 per setup -0.4 0.119042 5796.696
-0.35 0.198403 4490.101
Inventory Carrying Cost 1 per unit per month -0.3 0.305235 3620.036
-0.25 0.43605 3028.739
Optimal Q,Q* 2000 items -0.2 0.5814 2622.965
-0.15 0.72675 2346.051
-0.1 0.855 2162.952
Total Ordering Cost 500 per month -0.05 0.95 2051.957
Total Invnetory Carrying Cost 500 per month 0 1 2000
0.05 1.05 1951.8
Total cost 1000 per month 0.1 1.155 1860.968
0.15 1.32825 1735.362
0.2 1.5939 1584.162
0.25 1.992375 1416.917
0.3 2.590088 1242.719
0.35 3.496618 1069.562
0.4 4.895265 903.9447
0.45 7.098135 750.6852
a month. Unit cost is $10, batch set-up cost is $2,000 and holding cost is $1 a unit a
an be varied, how will the costs change?

tc oc icc
7000
345.0241 172.5121 172.5121
6000
445.4242 222.7121 222.7121
552.4808 276.2404 276.2404 5000
660.3408 330.1704 330.1704
762.4959 381.248 381.248 4000
852.4963 426.2482 426.2482 q
3000 tc
924.6621 462.3311 462.3311
974.6794 487.3397 487.3397
2000
1000 500 500
1024.695 512.3475 512.3475 1000
1074.709 537.3546 537.3546
1152.497 576.2486 576.2486 0
1262.498 631.2488 631.2488 0 1 2 3 4 5 6 7 8
1411.515 705.7576 705.7576
1609.375 804.6874 804.6874
1869.925 934.9623 934.9623
2212.525 1106.262 1106.262
2664.232 1332.116 1332.116
 q
tc

8
 Q :- A small shop produces three machine parts I, II and III in lots. The shop has only 650 sq. It
sauce. The appropriate data for the three items are represented in the following table:
 

The carrying charge on each item is 20 per cent of average inventory valuation per year. If no stockouts are
allowed, determine the optimal lot size for each item.
 

Item 1 2 3
D Demand(units/year) 5000 2000 10000
C Cost (per Unit) 10 15 5
A Setup Cost(per order) 100 200 75
IC Inventory carrying charges(per u 2 3 1
F Fllor Space Required(sq.ft/unit) 0.7 0.8 0.4

Total Q
Q* 324.1683 262.7277 532.25 1119.146

Floor Req
FQ 226.9178 210.1822 212.9 650

CD Total purchase cost 50000 30000 50000

AD/Q Total inventory cost 1542.409 1522.489 1409.112
ICQ/2 Total inventory carrying cost 324.1683 394.0916 266.125

Total cost 51866.58 31916.58 51675.24 Total Cost

135458.4
nly 650 sq. It
able:

r year. If no stockouts are

Available Space
650
 Q :- Demand for an item is constant at 400 units a month. The reorder cost and delivery charge amount to E1,240 and the cos
cent of value a year. A supplier quotes the following prices:

A second supplier quotes a basic price of £12, but with a discount to £11.40 for orders of 1,500 or more. What is the best ord

first supplier second supplier

Quantity
Quantity Unit Cost 0<=q<1500
0<q<1500 12.6 1500<=q
1500<=q<2000 12.2
2000<=q<2500 11.8
2500<=q 11.2

Demand
Demand 4800 units per year Ordering Cost(A)
Ordering Cost(A) 1240 per order Inv carrying charge
Inv carrying charge 30 % per year
unit cost
unit cost 12.6 12.2 11.8 11.2 IC
IC 3.78 3.66 3.54 3.36 bound
bound 0 1500 2000 2500 q
q 1774.6 1803.458 1833.77 1882.248
optimal Q
optimal Q 0 1803.458 2000 2500
total purchase cost
total purchase cost 0 58560 56640 53760 total ordering cost
total ordering cost 0 3300.327 2976 2380.8 total inventory cost
total inventory cost 0 3300.327 3540 4200
total cost
total cost 0 65160.65 63156 60340.8
lowest

Optimal,Q* 2,500
amount to E1,240 and the cost of holding stock is 30 per

or more. What is the best ordering policy?

Unit Cost
12
11.4

4800 units per year

1240 per order
30 % per year

12 11.4
3.6 3.42
0 1500
1818.424 1865.664

0 1865.664

total purchase cost 0 54720

total ordering cost 0 3190.285
total inventory cost 0 3190.285

0 61100.57
lowest

Optimal Q,Q* 1865.7

 Q :- Last month La Cafe Pigalle was sent a new price list by their merchants. The cost of their most popular wine is now:

Demand for the wine is relatively constant at 2000 a year,delivery costs £50 and the holding cost is 40 per cent of value a year
policy would you recommend for the restaurant? If e-procurement reduces the reorder cost so that it is effectively zero,how d
orders?

Quantity Unit Cost

0<q<100 12.6
100<=q<400 12.2
400<=q<1000 11.8
1000<=q 11.2

Demand 2000 units per year

Ordering Cost(A) 50 per order
Inv carrying charge 40 % per year

unit cost 20 19.4 18.8 18

IC 8 7.76 7.52 7.2
bound 0 100 400 1000
q 158.1139 160.5403 163.082 166.6667

optimal Q 0 160.5403 400 1000

total purchase cost 0 38800 37600 36000

total ordering cost 0 622.8965 250 100
total inventory cost 0 622.8965 1504 3600

total cost 0 40045.79 39354 39700

Lowest

Optimal Q,Q* 400

ost popular wine is now:

st is 40 per cent of value a year. What ordering

that it is effectively zero,how does this affect the
 Q :- The advertising department of a firm is planning to give adds in two magazines A and B. The product’s circulation and oth
potential customer of the product are men in the age group 30-50 with income ≥ 2000/-. The relative importance of these ch
these magazines are as follows:

The Management feels that there should be an advertisement in at least alternate editions of Magazine A and company’s bud
insertions should be placed in each magazine for effective exposure?

budget 50000

media : Magazine A B
circulation 50000 30000
age : 30-50 years 30000 15000
monthly income: > Rs 20,000 25000 10000
number of editions per year 24 52
least no of insertions 12 0
cost 2000 1000
avg noting of adv 0.4 0.3

w1 0.6
w2 0.4
x1 insertion in magazine A
x12 insertion in magazine B
p11 0.6
p12 0.5
p21 0.5
p22 0.333333

x1 x2 arbitary values x1 x2
budget constraint 2000 1000 24 2

objective function 11200 3900 new budget constraint x1

48000

max z 276600
sum 50000
e product’s circulation and other important characteristics are being provided. The
elative importance of these characteristics are 60% and 40%respectively. Data on

Magazine A and company’s budget is Rs 50,000/- for expenditure. How many

x2
2000
 Q :- On January 1 this year, Bakery A had 40% of its local market share while the other two Arteries B and C had 40% and 20%
marketing research firm, the following facts were compiled. Bakery A retains 90% of its customers while gaining 5% of compe
85% of to customers while gaining 5% of A's customers and 7% of C's customers. Bakery C retains 83% of customers and gains
firm's share be on January I, next year, and what will each firm's market share be at equilibrium?

Transistion probability matrix

a b c initial market share
a 0.9 0.05 0.05 0.4 0.4 0.2
b 0.05 0.85 0.1
c 0.1 0.07 0.83

transition
abc pqr xyz
1 0.4 0.374 0.226 23 0.429104 0.279769
2 0.4013 0.35372 0.24498 24 0.429295 0.279638
3 0.403354 0.337876 0.25877 25 0.429454 0.279531
4 0.405789 0.325476 0.268735 26 0.429587 0.279445
5 0.408358 0.315755 0.275887 27 0.429697 0.279376
6 0.410898 0.308122 0.28098 28 0.429789 0.279319
7 0.413313 0.302117 0.28457 29 0.429865 0.279273
8 0.415544 0.297385 0.287071 30 0.429928 0.279236
9 0.417566 0.29365 0.288784 31 0.429981 0.279205
10 0.41937 0.290695 0.289934 32 0.430024 0.279181
11 0.420962 0.288355 0.290683 33 0.430061 0.27916
12 0.422352 0.286498 0.291151 34 0.43009 0.279144
13 0.423556 0.285021 0.291423 35 0.430115 0.27913
14 0.424594 0.283845 0.291561 36 0.430136 0.279119
15 0.425483 0.282907 0.29161 37 0.430153 0.27911
16 0.426241 0.282158 0.291601 38 0.430166 0.279103
17 0.426885 0.281559 0.291557 39 0.430178 0.279097
18 0.42743 0.281078 0.291492 40 0.430188 0.279092
19 0.42789 0.280692 0.291418 41 0.430195 0.279088
20 0.428277 0.280382 0.29134 42 0.430202 0.279085
21 0.428603 0.280133 0.291265 43 0.430207 0.279082
22 0.428876 0.279931 0.291193 44 0.430212 0.27908
ries B and C had 40% and 20% respectively of the market share. Based upon a study by a
ers while gaining 5% of competitor B's: customers and 10% of C's customers. Bakery B retains
ns 83% of customers and gains 5% of A's customers and 10% of B's customers. What will each
?

0.291127
0.291068
0.291015
0.290968
0.290927
0.290892
0.290862
0.290836
0.290814
0.290795
0.290779
0.290766
0.290754
0.290745
0.290737
0.29073
0.290725
0.29072
0.290716
0.290713
0.290711
0.290708 Equlibrium State
 Q :- There are three firms, ABC, PQR and XYZ sharing a market as 40 per cent, 40 per cent and 20 per cent respectively on Jan
developments take place:
ABC retains 80 percent of its customers, loses 16 percent to PQR and 4 percent to XYZ.
PQR retains 84 percent of its customers, loses 12 percent to ABC and 4 percent to XYZ.
XYZ retains 76 percent of its customers, loses 18 percent to ABC and 6 percent to PQR.
Assuming that the market does not change.
what share of the market shall be held by each firm on January 1,2004?
what would the long-run shares of the firms at equilibrium be,if the buying habits do not change?

Transistion probability matrix

ABC PQR XYZ
abc 0.8 0.16 0.04 Initial market share
pqr 0.12 0.84 0.04 0.4 0.4 0.2
xyz 0.18 0.06 0.76

transition
ABC PQR XYZ
1 0.404 0.412 0.184
2 0.40576 0.42176 0.17248
3 0.406266 0.429549 0.164186
4 0.406112 0.435675 0.158214
5 0.405649 0.440437 0.153914
6 0.405076 0.444106 0.150818
7 0.404501 0.44691 0.148589
8 0.403976 0.44904 0.146984
9 0.403523 0.450649 0.145828
10 0.403145 0.451858 0.144997
11 0.402838 0.452764 0.144397
12 0.402594 0.45344 0.143966
13 0.402402 0.453942 0.143656
14 0.402253 0.454315 0.143432
15 0.402138 0.454591 0.143271
16 0.40205 0.454795 0.143155
17 0.401983 0.454945 0.143072
18 0.401933 0.455055 0.143012
19 0.401895 0.455137 0.142968
20 0.401867 0.455196 0.142937
21 0.401846 0.45524 0.142915
22 0.40183 0.455271 0.142899
23 0.401818 0.455295 0.142887
24 0.40181 0.455312 0.142879
25 0.401803 0.455324 0.142873
26 0.401799 0.455333 0.142868
27 0.401795 0.45534 0.142865
28 0.401793 0.455344 0.142863
29 0.401791 0.455348 0.142861
30 0.401789 0.45535 0.14286 equilbrium state
0 per cent respectively on January 1, 2002. Over a year, the following

e?
Q :- A researcher is analyzing brand switching between different airlines, operating on the Delhi-Mumbai made by frequent fl
researcher has developed the following condition Probability matrix :

It is found that currently the airlines AA. BB and CC have 20%, 50% and 30% of the market respectively.
(a)Obtain the market share for each airline in two months' time, and
(b)Calculate the long-run market share for each airline.

Transistion probability matrix initial market share

AA BB CC
AA BB CC 0.2 0.5 0.3
AA 0.9 0.03 0.07
BB 0.15 0.8 0.05
CC 0.2 0.3 0.5

transition

AA BB CC
1 0.315 0.496 0.189
2 0.3957 0.46295 0.14135
3 0.453843 0.424636 0.121522
4 0.496458 0.389781 0.113762
5 0.528032 0.360847 0.111122
6 0.55158 0.337855 0.110565
7 0.569213 0.320001 0.110786
8 0.582449 0.306313 0.111238
9 0.592399 0.295895 0.111706
10 0.599884 0.288 0.112116
11 0.605519 0.282031 0.11245
12 0.609762 0.277525 0.112713
13 0.612957 0.274127 0.112916
14 0.615364 0.271565 0.113071
15 0.617176 0.269634 0.113189
16 0.618542 0.26818 0.113279
17 0.61957 0.267084 0.113346
18 0.620345 0.266258 0.113397
19 0.620929 0.265636 0.113436
20 0.621368 0.265167 0.113465
21 0.621699 0.264814 0.113486
22 0.621949 0.264548 0.113503
23 0.622137 0.264348 0.113515
24 0.622278 0.264197 0.113525
25 0.622385 0.264083 0.113532
26 0.622465 0.263998 0.113537
27 0.622526 0.263933 0.113541
28 0.622571 0.263885 0.113544
29 0.622606 0.263848 0.113546
30 0.622632 0.26382 0.113548
31 0.622651 0.2638 0.113549
32 0.622666 0.263784 0.11355
33 0.622677 0.263772 0.113551
34 0.622685 0.263763 0.113551
35 0.622691 0.263757 0.113552 equlibrium state
-Mumbai made by frequent fliers. On the basis of the data collected by her, the

ectively.
 Q :- A company manufacturing laminate d sheets is considering to adopt an optimum advertising strategy to advertise its prod
Rs.5 lakh for the coming year. This company has decided to advertise in three magazines, say, Mi, M2 and M3. M, and M3 are
the audience having age 20-40 years, monthly income above Rs. 10,000 and education above SSC. These three characteristics
respectively. The following table gives, for each of the three magazines,the percentage of readers having the above character

The advertisement may be in colour, or black and white. The efficiency index for colour advertisement may be taken to be 0.3
colour, and black and white advertisements and the readership for the three magazines are given below:

To create the desired impact on the audience, it has been felt that during the coming year at least insertions are necessary in
have more than one insertion.
Formulate the above as a linear programming problem to find the optimum advertising strategy for the coming year in order
the LPP.)

budget 500000

media
circulation 400000 300000 200000
age : 20-40 years 70 60 90
monthly income: > Rs 10,000 50 40 75
Education: above SSC 80 70 80
number of editions per year 12 26 12
min no of insertions 5 4 5
black and white colour
efficency index 0.2 0.3

w1 0.3
w2 0.5
w3 0.2
x11 insertion in magazine m1 (colured)
x12 insertion in magazine m1 (black and white)
x21 insertion in magazine m2 (colured)
x22 insertion in magazine m2 (black and white)
x31 insertion in magazine m3 (colured)
x32 insertion in magazine m3 (black and white)
p11 0.7
p12 0.5
p13 0.8
p21 0.6
p22 0.4
p23 0.7
p31 0.9
p32 0.75
p33 0.8

x11 x12 x21 x22 x31 x32

budget constraint 18000 12000 16000 10000 19000 15000

objective function 74400 49600 46800 31200 48300 32200

max z 1702300
 g strategy to advertise its product in South India for which it has an advertising budget of
Mi, M2 and M3. M, and M3 are monthlies and M2 is fortnightly. The company is targeting
SC. These three characteristics have been assigned weights as 30%,50% and 20%
rs having the above characteristics:

ement may be taken to be 0.3 and that for black and white 0.2. The cost per insertion of
en below:

ast insertions are necessary in each of M1 and M3 and at least four in M2. No issue will

y for the coming year in order to maximize the expected effective exposure. (Do not solve
arbitary values x11 x12 x21 x22 x31 x32
11 1 0 19 5 0

insertion contraint 12 19 5

new budget constraint x11 x12 x21 x22 x31 x32

198000 12000 0 190000 95000 0

sum 495000