Concept explainers
a
Interpretation: Ending inventory at the end of month 4 is to be calculated.
Concept Introduction: Holding cost or inventory cost is the cost of warehousing in which unsold goods are kept. It includes transportation, warehousing, insurance etc.
a
Explanation of Solution
Demand of the product for 5 months is given as 200,50,200,200 and 150 respectively. Beginning inventory is 50 units and the company planned to produce 150 units per month for 5 months.
Calculation of inventories for next 5 months:
Month | 1 | 2 | 3 | 4 | 5 |
Demand | 200 | 50 | 200 | 200 | 150 |
Production | 150 | 150 | 150 | 150 | 150 |
Inventory on hand (50) | 0 | 100 | 50 | 0 | 0 |
The demand for the product is given and it is stated that units are planned for production for months. The beginning inventory is 50 units.
Calculation of ending inventory for month 1:
Ending inventory is calculated by adding beginning inventory and production. Then, subtract the attained value with demand of the product.
Hence, the ending inventory for the product is 0 units.
Hence, the same continues for all the months.
Calculation of ending inventory of month 4:
Ending inventory is calculated by adding beginning inventory and production. Then, subtract the attained value with the demand of the product.
Hence, the ending inventory for the product is 0 units.
b
Interpretation: Average inventory during the month of 2 is to be calculated.
Concept Introduction: Holding cost or inventory cost is the cost of warehousing in which unsold goods are kept. It includes transportation, warehousing, insurance etc.
b
Explanation of Solution
Calculation of average inventory during month 2:
Average inventory is calculated by taking the average of beginning and ending inventory of the certain period.
Hence, the average inventory for month 2 is 50 units.
c
Interpretation: Total inventory holding cost is to be calculated.
Concept Introduction: Holding cost or inventory cost is the cost of warehousing in which unsold goods are kept. It includes transportation, warehousing, insurance etc.
c
Explanation of Solution
Calculation of inventory holding cost:
It is given that the inventory holding cost per units is $0.50. Total inventory holding cost is calculated by multiplying the holding cost per unit with the sum of stock on hand over 5 months.
Hence, the total inventory holding cost is $75.
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Chapter 11 Solutions
Practical Operations Management
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