Production and Operations Analysis, Seventh Edition
Production and Operations Analysis, Seventh Edition
7th Edition
ISBN: 9781478623069
Author: Steven Nahmias, Tava Lennon Olsen
Publisher: Waveland Press, Inc.
bartleby

Concept explainers

bartleby

Videos

Question
Book Icon
Chapter 4, Problem 31AP

(a)

Summary Introduction

Interpretation:

The total number of standing that should P’s have with its supplier and the ways these orders should be placed.

Concept Introduction:

The economic order quantity, often called EOQ refers to the order quantity that helps the organization in minimizing the ordering and holding cost of the organization’s business.

(a)

Expert Solution
Check Mark

Explanation of Solution

Given data:

Monthly demand = 60 units

Annual demand

  = 12×60= 720 units 

Ordering cost = $20

The economic order quantity will be calculated by the following formula.

  Economic order quantity (EOQ) = 2×D×SHEOQ = 2×D×SH= 2×720×200.22×2.8= 288000.616= 46753.25= 216.22 units 

Hence, the optimal order quantity that P should order with its suppliers is 216.22 units.

Cycle time will be calculated by the following formula.

  T=Q*λ

  λ= Total demand per year

Q*= Economic order quantity

  T=216.22720= 0.3  years 

Thus, the order should be placed after every 0.3 years or 3.6 months.

(b)

Summary Introduction

Interpretation:

If it takes 3 weeks to receive a shipment, then the total inventory in hand while placing the order.

Concept Introduction:

The re-order level refers to the inventory level at which an organization would place a new order or begin a new manufacturing run.

(b)

Expert Solution
Check Mark

Explanation of Solution

The re-order level will be calculated by the following formula

  Re-order level = λ×L= 60×34= 45 units 

Thus, on-hand inventory will be 45 units when the new order will be placed.

(c)

Summary Introduction

Interpretation:

The average annual holding and fixed costs associated with these filters assuming they adopted an optimal policy.

Concept Introduction:

The economic order quantity, often called EOQ refers to the order quantity that helps the organization in minimizing the ordering and holding cost of the organization’s business.

(c)

Expert Solution
Check Mark

Explanation of Solution

The average annual holding cost will be calculated by the following formula.

  Average annual cost = 2KλH= 2×20×70×0.616= 17740.8= $133.194

The average annual holding cost is $133.194

(d)

Summary Introduction

Interpretation:

The store of P’s in the city is small, the ways this might affect the solution recommended in part (a).

Concept Introduction:

Inventory management is the process of ordering, storing, and using the organization’s inventory.

(d)

Expert Solution
Check Mark

Explanation of Solution

When the inventory is sourced from the suppliers, it is required to store at a suitable place for future use. If space will be less, then it will definitely impact the optimal quantity as there is less space to hold or store inventory. Thus, space impacts the optimal quantity to be ordered as it needed to be stored for the continuing requirement during the cycle time of production.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
The materials manager for a billiard ball maker must periodically place orders for resin, one of the raw materials used in producing billiard balls. She knows that manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04 per day to carry a kilogram of resin in inventory. She also knows that the order costs for resin are $100 per order, and that the lead time for delivery is four days. If the order size was 1,000 kilograms of resin, what would be the average inventory level?
Catlea Merchandising is engaged in selling school shoesfor both boys and girls in their teenage years. Catlea needs 32,000 pairs of shoes in a year in order to satisfy the market demand. It costs ₱ 48 to place an order while ₱ 8 is needed to hold each quantity of shoe in Catlea's inventory. Upon checking on Catlea's supplier, it takes 8 days in between placing an order and eventually receiving it. a. Determine the Economic Order Quantityb. Determine the number of order per monthc. Determine the reorder point
Peet's Coffees in Menlo Park, California, sells Melitta Number 101 coffee filters at a fairly steady rate of about 60 boxes of filters monthly. The filters are ordered from a supplier in Trenton, New Jersey. Peet's manager is interested in applying some inventory theory to determine the best replenishment strategy for the filters. Peet's pays $2.80 per box of filters and estimates that fixed costs of employee time for placing and receiving orders amount to about $20. Peet's uses a 22 percent annual interest rate to compute holding costs. b. Suppose that it takes three weeks to receive a shipment. What inventory of filters should be on hand when an order is placed?
Knowledge Booster
Background pattern image
Operations Management
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, operations-management and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Purchasing and Supply Chain Management
Operations Management
ISBN:9781285869681
Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:Cengage Learning
Inventory Management | Concepts, Examples and Solved Problems; Author: Dr. Bharatendra Rai;https://www.youtube.com/watch?v=2n9NLZTIlz8;License: Standard YouTube License, CC-BY