Operations Management
17th Edition
ISBN: 9781259142208
Author: CACHON, Gérard, Terwiesch, Christian
Publisher: Mcgraw-hill Education,
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Chapter 10, Problem 10PA
Summary Introduction
To determine: The average cost to hold each unit of the item in inventory.
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Jam costs $10/jar, requires a 6mo. lead time, and will
sell for $35/jar. If you stock out, you'll face a $25/jar
loss of goodwill. Placing an order costs $50, and
money that is tied up in capital is assumed to have a
20% interest rate for calculating holding costs. During
the 6-mo replenishment time, he sells ~100 jars, but
with substantial variation. Estimates are a standard
deviation of demand during each 6-mo period of 25
jars. Assume demand is described by a normal
distribution. How should the Jam be ordered?
Medtronic sells medical devices. The company enjoys many growth opportunities, and so it measures its inventory holding cost at the rate of 25% per year. It currently turns over its inventory 3 times per year. Its gross margin (the difference between revenue and cost) as a percentage of its revenue is an enviable 65%.
a. For an item that costs Medtronic $600 to produce, what would be the cost ($s) to hold this item for one year in inventory?
b. For an item that costs Medtronic $350 to produce, what is the cost to hold it in inventory ($s)? (Assume it remains in inventory for the average amount of time for the company.)
A firm has P5,000,000 of inventory on average and annual sales of P30,000,000. Assume there are 365 days per year. What is the firm’s inventory conversion period?
Chapter 10 Solutions
Operations Management
Ch. 10 - It is costly to hold inventory, but inventory can...Ch. 10 - A delivery truck from a food wholesaler has just...Ch. 10 - Prob. 3CQCh. 10 - Prob. 4CQCh. 10 - Prob. 5CQCh. 10 - Prob. 6CQCh. 10 - Prob. 7CQCh. 10 - Prob. 8CQCh. 10 - Prob. 9CQCh. 10 - Prob. 10CQ
Ch. 10 - Prob. 11CQCh. 10 - Prob. 1PACh. 10 - Prob. 2PACh. 10 - Prob. 3PACh. 10 - An electronics manufacturer has 25 days-of-supply...Ch. 10 - Prob. 5PACh. 10 - Prob. 6PACh. 10 - Prob. 7PACh. 10 - Prob. 8PACh. 10 - An online shoe retailers annual cost of holding...Ch. 10 - Prob. 10PACh. 10 - Prob. 11PACh. 10 - Prob. 12PACh. 10 - Prob. 13PACh. 10 - Prob. 14PACh. 10 - Prob. 15PACh. 10 - Prob. 16PACh. 10 - A retailer has annual sales of 500,000 and an...Ch. 10 - Prob. 18PACh. 10 - Prob. 19PACh. 10 - Prob. 1CCh. 10 - Prob. 3CCh. 10 - Prob. 4C
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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
- Every year XYZ Corp. sells 3,300 units of its product. It is charged $56.50 every time it reorders from its supplier and its inventory holding costs are $6.20 per unit. In order to minimize overall inventory costs, what would be the firm's average number of units that it holds?arrow_forwardA manufacturing company uses 25,000 components at an even rate during a year. Eachorder placed with the supplier of the components is for 2,000 components, which is theeconomic order quantity. The company holds a buffer inventory of 500 components. Theannual cost of holding one component in inventory is $2.What is the total annual cost of holding inventory of the component?arrow_forwardA local bookstore turns over its inventory once every three months. The bookstore’sannual cost of holding inventory is 36 percent. What is the inventory holding cost (in $)for a book that the bookstore purchases for $10 and sells for $18?arrow_forward
- The Bosch factory in New Bern, NC uses dishwasher motors at a steady rate of 17308 units per year. Bosch procures these units from a supplier at a purchase cost of $58 per unit. Bosch receives an order 26 days after it is placed. Regardless of the number of units ordered, Bosch incurs a fixed cost of $2988 for placing, shipping, and receiving the order. The holding cost per unit per year is 30% of the purchase cost per unit. Assume Bosch operates 364 days, 52 weeks, or 12 months per year. Calculate the average time a unit spends in inventory between orders in DAYS for the optimal order quantity from the problem above. Rounding instructions • Carry your calculations to at least 3 decimal places. • Enter your answer rounded to one decimal place (nearest tenth).arrow_forwardKickBites Manufacturing has a demand for 1,000 pumps each year. The cost of a pump is $50. It cost KickBites Manufacturing $40 to place an order, and the carrying cost is 25% of the unit cost. If pumps are ordered in quantities of between 200 and 250, KickBites Manufacturing can get a discount on the cost of the pumps. Should the company order 200 pumps or 250 pumps at a time and take the 3% discount? [Provide your answers in two decimal points]arrow_forwardA customer buys 1 ABC Jan 35 put for a premium of $3 and simultaneously buys 100 shares of ABC stock for $35 per share. The customer will break even when the stock is selling for what price per share at expiration?arrow_forward
- HairGlow uses a chemical in the production of one of its hair products at a rate of 1,000 litres per year. The cost of placing an order and of receiving the chemical once it arrives in the warehouse is Ksh 30 and Ksh 70 respectively. The chemical is purchased at Ksh 20 per litre. Holding costs per year for a litre of the chemical is considered to be 15 percent of its cost. Find the optimal order sizearrow_forwardDemand for an item is constant at 500 units a year. Unit cost is $50, reorder cost is $80 and holding costis 60 per cent of value a year. Any demand that occurs when no stock remains is lost. What is the minimum selling price that makes it profitable to stock the item?arrow_forwardDemand for your product averages 20 units per day, with a standard deviation of 4. Your lead time is 5 days. What should your reorder point be, if you want to have a 95% chance of not running out of products during the lead time? With this reorder level, how much safety stock do you have?arrow_forward
- A fabricating shop orders supplies every 5 days. The lead time for deliveries is 8 days. Demand for oxygen averages 29 pounds per day with a standard deviation of 3.2 pounds. The holding cost for oxygen is $0.55 per pound per day. The fabricating shop wants to achieve an in-stock probability rate of 90% for oxygen. Round your answer to one decimal place. On average, how many pounds of oxygen will the fabricating shop have on order? poundsarrow_forwardThe owner and manager of a hardware store reevaluates his inventory policy for hammers. sells an average of 50 hammers a month, so you have placed purchase orders for 50 hammers with a distributor at a cost of $20 each at the end of each month. But the owner does not place all the store orders and find that this takes much of your time. He estimates that the value of his time spent ordering hammers is $75. a) What must be the unit cost of maintaining hammers for the current policy of the hardware store to be Optimal according to the EOQ model? b) If the distributor delivers an order for hammers in 5 business days (out of an average of 25 per month), what should be the reorder point, according to the EOQ model?arrow_forwardKohl’s sells jeans for $40 a pair that it purchases for $20 a pair. Its annual holding cost percentage is 25 percent and these jeans turn 10 times per year. What holding costdoes it incur for each pair of jeans?arrow_forward
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