Q1) A company buys bolts and spacers from a supplier.

Each bolt costs 15 cents and each spacer

costs 38 cents. Setup cost is $100 for all orders and holding costs are based on a 25% annual
interest rate. The factory buys 20000 bolts and14000 spacers annually.
a) Determine the optimal size of orders of bolts and spacers and the optimal time between
the placements of orders of these two items.
b) If both items are ordered and received simultaneously, the setup cost of $100 applies to
the combined order. Compare the average annual cost of holding and setup if these items
are ordered separately, if they are both ordered when the bolts would normally be ordered
and if they are both ordered when the spacers would normally be ordered.
.
Q2) ABC factory sells tables. Incremental discounted prices are given in the table below. A
customer wants to buy 140 tables per year. Order costs are based on an 18% annual interest rate.
What should be the optimal order size?

Quantity
interval unit price
Q<=25 350
26<=Q<=50 315
50<Q 285

Q3) A distributed warehouse has a big cold product section. It can store 3 types of dairy product
(milk, yoghurt and cheese) with different sizes of boxes. Total space available is 1000m2.
Relative data is given in the following table:

Yogurt milk cheese

Annual Demand 850 1280 630
Cost per kg 0.29 0.45 0.25

The setup cost is $100 for each case. The space required by each product is proportional to its
cost. Yogurt requires 0.5 m2 per kg. The annual interest rate used for calculating holding cost is
25%. What are the optimal quantities that should be purchased for these three products?

Q4) A factory orders a required special raw material for $4 per unit. 3 weeks is required for
delivery. Setup cost is $75 and holding costs are based on 20% annual rate. It is estimated that
loss of good will for not having the raw material is equal to $25. Based on the past experience,
the weekly demand for the raw material is normal with mean 12 and standard deviation is 4.
Assume 52 weeks per year.
a) Calculate the order size and determine when should those orders be placed? (Q,R)
b) What level of Type I service is being provided by the policy you found in part a?
c) What level of Type II service is being provided by the policy you found in part a?
d) What policy should the factory use if the stock-out cost is replaced with a Type I service
objective of 95%?
e) What policy should the factory use if the stock-out cost is replaced with a Type II service
objective of 95%?