Fall 2023

MTH601- Operations Research

Assignment No 1 Solution
Section In charge: Saima Kanwal
Muhammad Danish (bc190400759)
Question # 1

If the production of an item is instantaneous with storage cost of Rs.5 per item per
month. Other clerical and administrative costs associated to it are of Rs.30 per cycle.
Find the best time for replacement provided that its demand is Rs.250 units of items
per month.

Solution:
Demand (D) = 250 units per month
Storage cost of (C3) = Rs.5 per item per month
clerical and administrative costs associated to it are of Rs.30 per cycle
So
Ordering/purchasing/ setup cost= (C2) =0+30
By using EOQ formula we have

EOQ= √ 2 C2 D
C3
Putting values we get
EOQ= √
EOQ=√ 3000
5
2∗30∗250

EOQ= 54.77
Now the Formula of time is=D/EOQ
Best time for replacement = 250/54.77
Best time for replacement =4.56
Which is probably 5 months

Question # 2

Demand for an item in a company is 5,000 units per year and company can produce
at a rate of 1500 units per month. Cost of ordering is Rs 800 per setup and holding
cost is 20 units per year, the shortage cost is 1000 per unit per year If optimum
manufacturing quantity is 1400 then find the following

a. Time Between orders

b. Number of orders per year
 Solution

As we are given with

Demand for an item in a company (D)=5000

Production (P)= 1500

Cost of ordering C2= 800

Holding cost C3=20

Shortage cost C3= 1000

Optimum manufacturing quantity (Q)= 1400

Now Time Between orders

Time Between orders TBO

The time between orders t* = Q*/ D

= 89.44/5000 (as Q* =
√ C3 √
2 C 2 D 2 x 5000 x 800
=
1000
=89.44)

=0.011 Almost

And

b. Number of orders per year

The optimum number of orders per year is determined from N* = D /Q*
N* = D /Q*

N* = 5000/89.44 (as Q* =
√ C3 √
2 C 2 D 2 x 5000 x 800
=
1000
=89.44)

=5000/89.44
N=55.9 per year
Which is approximately 56