Assignment 2 - Quantitative Methods (1)

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Fort Valley State University *

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Business

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Apr 3, 2024

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Tiffini Rucker February 25, 2024 Quantitative Method Assignment 2 Instruction: Using The text in use as a reference point of chapter ten, answer the set of questions listed below. 1. Briefly explain what is inventory/provide concrete examples entertained in the text? A - Inventory refers to idle goods or materials held by an organization for use sometime in the future. For example, R&B Beverage is a distributor of beer, wine, and soft drink products. From a main warehouse located in Columbus, Ohio, R&B supplies nearly 1000 retail stores with beverage products. The beer inventory, which constitutes about 40% of the company’s total inventory, averages approximately 50,000 cases. With an average cost per case of approximately $8, R&B estimates the value of its beer inventory to be $400,000. 2. Briefly explain, what are the two primary reasons why organizations stock inventory?  Meeting Customer Demand: By stocking goods, organizations can promptly fulfill customer orders, ensuring products are readily available to meet demand without delays. This enhances customer satisfaction and loyalty by providing reliable access to desired products.  Buffering Against Uncertainty: Inventory acts as a buffer against supply chain uncertainties like fluctuating lead times, unexpected demand spikes, or production disruptions. Maintaining inventory levels enables organizations to absorb these fluctuations, preventing operational interruptions and maintaining customer satisfaction during unexpected challenges. 3. Having a clear understanding about the applications involving inventory, what are the two important questions managers must answer? A - How much should be ordered? & When the inventory is replenished? 4. Briefly explain what is stockout? A – When demand exceeds the amount of inventory on hand. 5. Briefly explain what is safety stock. And provide some concrete examples entertained in the text A - Safety stock refers to extra inventory maintained by companies above the anticipated demand. Some examples are retail stores, manufacturing plants, e-commerce warehouses, food industry, and automotive industry. 6. Briefly explain what is EOQ model?

A – EOQ is applicable when the demand for an item shows a constant, or nearly constant, rate and when the entire quantity ordered arrives in inventory at one point in time, 7. Briefly explain what the difference is between holding cost and ordering cost. A - Holding costs are the costs associated with maintaining or carrying a given level of inventory. Ordering costs are the expenses incurred each time a company places an order for inventory. 8. Briefly explain how do we calculate holding costs. A - The holding cost can be calculated using the average inventory. That is, we can calculate the holding cost by multiplying the average inventory by the cost of carrying one unit in inventory for the stated period. 9. Briefly explain how the inventory position is defined. A - The inventory position is defined as the amount of inventory on hand plus the amount of inventory on order. Problem Statement : Beauty Bar Soap is produced on a production line that has an annual capacity of 60,000 cases. The annual demand is estimated at 26,000 cases, with the demand rate essentially constant throughout the year. The cleaning, preparation, and setup of the production line cost approximately $135. The manufacturing cost per case is $4.50, and the annual holding cost is figured at a 24% rate. Thus, Ch = IC = 0.24($4.50) = $1.08. There is a five-day lead time to schedule and set up a production run and 250 working days per year. Using the above information: 10. Determine, what is the lead time of demand? D = Annual demand/ Number of working days per year D = 26,000/250 D = 104 cases/day 11. Determine, what is the order point? You need to show how you arrive at your response. OP = 104×5+0 OP = 520 cases So, the order point is 520 cases. Problem Statement : Assume that a production system produces 50 units per day, and we decide to schedule 10 days of production. 12. What is the unit production lot size?

Unit production lot size = 50 units / day × 10 days Unit production lot size = 500 units So, the unit production lot size is 500 units .

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