DSIOPMA: PROBLEM SOLVING NO.

6—INVENTORY MANAGEMENT PROBLEM SET

𝑆𝑜𝑙𝑢𝑡𝑖𝑜𝑛:

𝑎.
Annual dollar
Item Unit cost Annual volume % Sum of % Classification
volume

6 60 85 5100 39.94% 39.94% A

1 100 25 2500 19.58% 59.51% A

2 80 30 2400 18.79% 78.31% A

3 15 60 900 7.05% 85.36% B

5 11 70 770 6.03% 91.39% B

7 10 60 600 4.70% 96.08% C

4 50 10 500 3.92% 100.00% C

340 12770 100%

2𝐷𝑆 2𝐷𝑆 𝑝
𝑏. 𝐸𝑂𝑄 = 𝐻
𝑐. 𝐸𝑃𝑄 = 𝐻 (𝑝−𝑢)
(2×4500×36) (2×18000×100) 120
𝐸𝑂𝑄 = 𝐸𝑃𝑄 = 40 (120−90)
10
𝐸𝑂𝑄 = 180 𝐸𝑃𝑄 = 600
𝑆𝑜𝑙𝑢𝑡𝑖𝑜𝑛:

𝐴𝑛𝑛𝑢𝑎𝑙 𝑑𝑒𝑚𝑎𝑛𝑑 𝐷 = 1215 𝑏𝑎𝑔𝑠 𝑑. 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝑇𝑜𝑡𝑎𝑙 𝑐𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 + 𝑇𝑜𝑡𝑎𝑙 𝑜𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡
𝑂𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 𝑆 = $10
𝐻𝑜𝑙𝑑𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 𝐻 = $75
=( )𝐻 + ( )𝑆
𝑄
𝑆
𝐷
𝑄

= ( )7 + ( ) × 10
18 1215
2 18

𝑎. 𝐸𝑐𝑜𝑛𝑜𝑚𝑖𝑐 𝑜𝑟𝑑𝑒𝑟 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝐸𝑂𝑄 = 675 + 675

2𝐷𝑆 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = $1350
𝐸𝑂𝑄 = 𝐻

𝐸𝑂𝑄 = (2 × 1215 × )
10
75
𝑒. 𝐼𝑓 ℎ𝑜𝑙𝑑𝑖𝑛𝑔 𝑐𝑜𝑠𝑡𝑠 𝑤𝑒𝑟𝑒 𝑡𝑜 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑏𝑦 $9 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 𝐻 = 84
10
𝐸𝑂𝑄 = 18 𝐸𝑂𝑄 = 2 × 1215 × 84
= 17
𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝑇𝑜𝑡𝑎𝑙 𝑐𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 + 𝑇𝑜𝑡𝑎𝑙 𝑜𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡
𝐸𝑂𝑄
𝑏. 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑏𝑎𝑔𝑠 𝑜𝑛 ℎ𝑎𝑛𝑑 = 2 = ( )𝐻 + ( )𝑆
𝑄
2
𝐷
𝑄

= ( )84 + ( ) × 10
17 1215
18 2 17
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑏𝑎𝑔𝑠 𝑜𝑛 ℎ𝑎𝑛𝑑 = 2
=9
= 714 + 714. 706 = $1428. 706
𝐼𝑛𝑐𝑟𝑒𝑎𝑠𝑒𝑑 𝑏𝑦 ($1428. 706 − $1350) = 78. 706
𝐷 1215
𝑐. 𝑂𝑟𝑑𝑒𝑟𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 = 𝐸𝑂𝑄
− 18
= 67. 5 = 68
𝑆𝑜𝑙𝑢𝑡𝑖𝑜𝑛:

𝑝 = 5, 000 ℎ𝑜𝑡𝑑𝑜𝑔𝑠/𝑑𝑎𝑦
𝑢 = 250 ℎ𝑜𝑡𝑑𝑜𝑔𝑠/𝑑𝑎𝑦
300 𝑑𝑎𝑦𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝐷 = 250/𝑑𝑎𝑦 × 300 𝑑𝑎𝑦𝑠/𝑦𝑟. = 75, 000
𝑆 = $66
𝐻 = $. 45/ℎ𝑜𝑡𝑑𝑜𝑔 𝑝𝑒𝑟 𝑦𝑟.

2𝐷𝑆 𝑝 2(75,000)66 5,000

𝑎. 𝑄0 = 𝐻 𝑜−𝑢
= .45 4,750
= 4, 812. 27[𝑟𝑜𝑢𝑛𝑑 𝑡𝑜 4, 812]

𝐷 75,000
𝑏. 𝑄0
= 4,812
= 15. 59, 𝑜𝑟 𝑎𝑏𝑜𝑢𝑡 16 𝑟𝑢𝑛𝑠/𝑦𝑟.

𝑄0 4,812
𝑐. 𝑟𝑢𝑛 𝑙𝑒𝑛𝑔𝑡ℎ: 𝑝
= 5,000
=. 96 𝑑𝑎𝑦𝑠, 𝑜𝑟 𝑎𝑝𝑝𝑟𝑜𝑥𝑖𝑚𝑎𝑡𝑒𝑙𝑦 1 𝑑𝑎𝑦.
𝑆𝑜𝑙𝑢𝑡𝑖𝑜𝑛:

𝐶𝑜𝑛𝑠𝑖𝑑𝑒𝑟 𝑡ℎ𝑒 𝑔𝑖𝑣𝑒𝑛 𝑖𝑛𝑓𝑜𝑟𝑚𝑎𝑡𝑖𝑜𝑛:

𝐴𝑛𝑛𝑢𝑎𝑙 𝑑𝑒𝑚𝑎𝑛𝑑 (𝐷) = 18, 000 𝑏𝑜𝑥𝑒𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟.
𝐶𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 (𝐻) = 60 𝑐𝑒𝑛𝑡𝑠 𝑝𝑒𝑟 𝑏𝑜𝑥 𝑎 𝑦𝑒𝑎𝑟.
𝑂𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 (𝑆) = $96

𝑎. 𝐷𝑒𝑡𝑒𝑟𝑚𝑖𝑛𝑒 𝑡ℎ𝑒 𝑜𝑝𝑡𝑖𝑚𝑎𝑙 𝑜𝑟𝑑𝑒𝑟 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑎𝑠 𝑠ℎ𝑜𝑤𝑛 𝑏𝑒𝑙𝑜𝑤:

2𝐷𝑆
𝐸𝑂𝑄 = 𝐻
2×18,000×96
= $0.60
3,456,000
= $0.60
= 2, 400 𝑏𝑜𝑥𝑒𝑠.

𝐴𝑠 2, 400 𝑏𝑜𝑥𝑒𝑠 𝑓𝑎𝑙𝑙 𝑖𝑛 𝑡ℎ𝑒 𝑟𝑎𝑛𝑔𝑒 𝑜𝑓 2, 000 𝑡𝑜 4, 999 𝑏𝑜𝑥𝑒𝑠 𝑡ℎ𝑒 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑏𝑜𝑥 𝑤𝑜𝑢𝑙𝑑 𝑏𝑒 $1. 20.
𝑐𝑎𝑙𝑐𝑢𝑙𝑎𝑡𝑒 𝑡ℎ𝑒 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑎𝑠 𝑠ℎ𝑜𝑤𝑛 𝑏𝑒𝑙𝑜𝑤:

𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝑜𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 + 𝑐𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 + 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑖𝑛𝑔 𝑐𝑜𝑠𝑡

=( 𝑄
2
× ) (
𝐻 +
𝐷
𝑄 )
× 𝑆 + (18, 000 × $1. 20)
=( ) ( )
2,400 18,000
2
× 0. 60 + 2,400
× 96 + $21, 600
= 720 + 720 + 21, 600
= $23, 040

𝑈𝑠𝑖𝑛𝑔 𝑎𝑛 𝑜𝑟𝑑𝑒𝑟 𝑠𝑖𝑧𝑒 𝑜𝑓 10, 000 𝑓𝑜𝑟 𝑎 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 $1. 10 𝑝𝑒𝑟 𝑏𝑜𝑥 𝑐𝑎𝑙𝑐𝑢𝑙𝑎𝑡𝑒 𝑡ℎ𝑒 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑎𝑠 𝑠ℎ𝑜𝑤𝑛 𝑏𝑒𝑙𝑜𝑤:

𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝑜𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 + 𝑐𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 + 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑖𝑛𝑔 𝑐𝑜𝑠𝑡

=( 𝑄
2
×𝐻 + 𝑄) ( 𝐷
)
× 𝑆 + (18, 000 × $1. 10)
=( )+ ( )
10,000 18,000
2
× 0. 60 10,000
× 96 + $16, 800
𝑈𝑠𝑖𝑛𝑔 𝑎𝑛 𝑜𝑟𝑑𝑒𝑟 𝑠𝑖𝑧𝑒 𝑜𝑓 5, 000 𝑓𝑜𝑟 𝑎 𝑝𝑖𝑒𝑐𝑒 𝑜𝑓 1. 15 𝑝𝑒𝑟 𝑏𝑜𝑥 𝑐𝑎𝑙𝑐𝑢𝑙𝑎𝑡𝑒 𝑡ℎ𝑒 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑎𝑠 𝑠ℎ𝑜𝑤𝑛 𝑏𝑒𝑙𝑜𝑤:

𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝑜𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 + 𝑐𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 + 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑖𝑛𝑔 𝑐𝑜𝑠𝑡

=( 𝑄
2
×𝐻 + 𝑄) ( 𝐷
)
× 𝑆 + (18, 000 × $1. 10)
=( )+ ( )
10,000 18,000
2
× 0. 60 10,000
× 96 + $16, 800
= 3, 000 + 172, 8 + 19, 800
= $22, 972. 8

𝑈𝑠𝑖𝑛𝑔 𝑎𝑛 𝑜𝑟𝑑𝑒𝑟 𝑠𝑖𝑧𝑒 𝑜𝑓 5, 000 𝑓𝑜𝑟 𝑎 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 1. 15 𝑝𝑒𝑟 𝑏𝑜𝑥 𝑐𝑎𝑙𝑐𝑢𝑙𝑎𝑡𝑒 𝑡ℎ𝑒 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑎𝑠 𝑠ℎ𝑜𝑤𝑛 𝑏𝑒𝑙𝑜𝑤:

𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝑜𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 + 𝑐𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 + 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑖𝑛𝑔 𝑐𝑜𝑠𝑡

=( 𝑄
𝑠
× ) (
𝐻 +
𝐷
𝑄 )
× 𝑆 + (18, 000 × $1. 15)
=( ) ( )
5,000 18,000
2
× 0. 60 + 5,000
× 96 + $20, 700
= 1, 500 + 345, 6 + 20, 700
= $22, 545. 6

𝑇ℎ𝑒𝑟𝑒𝑓𝑜𝑟𝑒, 𝑡ℎ𝑒 𝑚𝑖𝑛𝑖𝑚𝑢𝑚 𝑐𝑜𝑠𝑡 𝑖𝑠 𝑓𝑜𝑟 𝑜𝑟𝑑𝑒𝑟𝑖𝑛𝑔 5, 000 𝑏𝑜𝑥𝑒𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟.
𝐻𝑒𝑛𝑐𝑒, 𝑡ℎ𝑒 𝑜𝑝𝑡𝑖𝑚𝑎𝑙 𝑜𝑟𝑑𝑒𝑟 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑖𝑠 5, 000 𝑏𝑜𝑥𝑒𝑠.

𝑏. 𝐶𝑎𝑙𝑐𝑢𝑙𝑎𝑡𝑒 𝑡ℎ𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑜𝑟𝑑𝑒𝑟𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 𝑎𝑠 𝑠ℎ𝑜𝑤𝑛 𝑏𝑒𝑙𝑜𝑤:

𝑇𝑜𝑡𝑎𝑙 𝑏𝑜𝑥𝑒𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑜𝑟𝑑𝑒𝑟𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 = 𝑏𝑜𝑥𝑒𝑠 𝑝𝑒𝑟 𝑜𝑟𝑑𝑒𝑟
18,000
= 5,000
= 3. 6 𝑜𝑟𝑑𝑒𝑟𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟.

𝐻𝑒𝑛𝑐𝑒, 𝑡ℎ𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑜𝑟𝑑𝑒𝑟𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 𝑖𝑠 3. 6 𝑜𝑟𝑑𝑒𝑟𝑠.

𝑆𝑜𝑙𝑢𝑡𝑖𝑜𝑛:

𝑎. 𝑆𝑖𝑛𝑐𝑒 𝑡ℎ𝑒 𝑟𝑖𝑠𝑘 𝑜𝑓 𝑠𝑡𝑜𝑐𝑘 𝑜𝑢𝑡 𝑖𝑠 1 𝑝𝑒𝑟𝑐𝑒𝑛𝑡 𝑑𝑢𝑟𝑖𝑛𝑔 𝑙𝑒𝑎𝑑 𝑡𝑖𝑚𝑒,

𝑊𝑒 𝑛𝑒𝑒𝑑 𝑡𝑜 𝑓𝑖𝑛𝑑 𝑜𝑢𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑍 𝑓𝑟𝑜𝑚 𝑛𝑜𝑟𝑚𝑎𝑙 𝑑𝑖𝑠𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑡𝑎𝑏𝑙𝑒 𝑓𝑜𝑟 𝑝𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑎𝑟𝑒𝑎 𝑜𝑓 0. 99
(𝑎𝑟𝑟𝑖𝑣𝑒𝑑 𝑏𝑎𝑠𝑖𝑠 100 𝑝𝑒𝑟𝑐𝑒𝑛𝑡 𝑙𝑒𝑠𝑠 1 𝑝𝑒𝑟𝑐𝑒𝑛𝑡 𝑐ℎ𝑎𝑛𝑐𝑒 𝑜𝑓 𝑠𝑡𝑜𝑐𝑘 𝑜𝑢𝑡)

𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑍 𝑖𝑠 − 2. 33(𝑍 = 2. 33 𝑓𝑜𝑟 𝑝𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑎𝑟𝑒 𝑜𝑓 0. 99013)

𝑅𝑒𝑜𝑟𝑑𝑒𝑟 𝑝𝑜𝑖𝑛𝑡
= 𝐷𝑒𝑚𝑎𝑛𝑑 𝑑𝑢𝑟𝑖𝑛𝑔 𝑙𝑒𝑎𝑑 𝑡𝑖𝑚𝑒 + 𝑍. × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛 𝑑𝑢𝑟𝑖𝑛𝑔 𝑙𝑒𝑎𝑑 𝑡𝑖𝑚𝑒
= 300 + 2. 33 × 30
= 300 + 69. 9
= 369. 9(370 𝑟𝑜𝑢𝑛𝑑𝑒𝑑 𝑡𝑜 𝑛𝑒𝑎𝑟𝑒𝑠𝑡 𝑖𝑛𝑡𝑒𝑔𝑒𝑟)

𝑅𝐸𝑄𝑈𝐼𝑅𝐸𝐷 𝑅𝑂𝑃 𝑇𝐻𝐴𝑇 𝑊𝐼𝐿𝐿 𝑃𝑅𝑂𝑉𝐼𝐷𝐸 𝐴 𝑅𝐼𝑆𝐾 𝑂𝐹 𝑆𝑇𝑂𝐶𝐾𝑂𝑈𝑇 𝑂𝐹 1 𝑃𝐸𝑅𝐶𝐸𝑁𝑇 𝐷𝑈𝑅𝐼𝑁𝐺 𝐿𝐸𝐴𝐷 𝑇𝐼𝑀𝐸 = 370

𝑏. 𝑠𝑎𝑓𝑒𝑡𝑦 𝑠𝑡𝑜𝑐𝑘 𝑛𝑒𝑒𝑑𝑒𝑑

= 𝑍 𝑣𝑎𝑙𝑢𝑒 × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛 𝑜𝑓 𝑙𝑒𝑎𝑑 𝑡𝑖𝑚𝑒
= 2. 33 × 30
= 69. 9(𝑜𝑟, 70 𝑟𝑜𝑢𝑛𝑑𝑒𝑑 𝑡𝑜 𝑛𝑒𝑎𝑟𝑒𝑠𝑡 𝑖𝑛𝑡𝑒𝑔𝑒𝑟

𝑆𝐴𝐹𝐸𝑇𝑌 𝑆𝑇𝑂𝐶𝐾 𝑁𝐸𝐸𝐷𝐸𝐷 𝑇𝑂 𝐴𝑇𝑇𝐴𝐼𝑁 𝐴 1 𝑃𝐸𝑅𝐶𝐸𝑁𝑇 𝑅𝐼𝑆𝐾 𝑂𝐹 𝐴 𝑆𝑇𝑂𝐶𝐾𝑂𝑈𝑇 𝐷𝑈𝑅𝐼𝑁𝐺 𝐿𝐸𝐴𝐷 𝑇𝐼𝑀𝐸 = 70