MGT 382-HW3-
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School
Mercer University *
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Course
348
Subject
Industrial Engineering
Date
Dec 6, 2023
Type
docx
Pages
3
Uploaded by YC5040
Problem 1) (25 points)
Joe Henry’s machine shop uses 2,800 brackets during the course of a year. These brackets are
purchased from a supplier 90 miles away. The following information is known about the
brackets:
Annual Demand
2800
Holding Cost per bracket per year
$2
Order Cost per order
$20
Lead time
2
Working days per year
270
a) Given the above information, what would be the economic order quantity (EOQ)?
Using the information given in the question, we can plug in the values and calculate the EOQ as
follows:
EOQ=22×2800×20
EOQ=56000
EOQ=236.64
b) Given the EOQ, what would be the average inventory? What would be the annual inventory
holding cost?
c) Given the EOQ, how many orders would be made each year? -13 What would be the annual
order cost?
Annual order cost = 20 * 20 = $400
Therefore, the number of orders made each year is
20 orders
and the
annual order cost is
$400
.
d) Given the EOQ, what is the total annual cost of managing the inventory?
Total annual cost = (2800/140)*20 + (140/2)*2 = $400 + $140 = $540
Therefore, the total annual cost of managing the inventory is
$540
.
e) What is the time between orders?
Time between orders = 270 / (2800/140) = 13.5 days
Therefore, the time between orders is
13.5 days
.
.
f) What is the reorder point (ROP)?
where
Safety stock
is the amount of inventory held to mitigate the risk of
stockouts. Since the problem does not provide any information about the
safety stock, we cannot calculate the reorder point
Problem 2) (25 points)
Emarpy Appliance is a company that produces all kinds of major appliances. Bud Banis, the
president of Emarpy, is concerned about the production policy for the company’s bestselling
refrigerator. The annual demand has been about 9,000 units each year, and this demand has been
constant throughout the year. The production capacity is 220 units per day. Each time production
starts, it costs the company $150 to move materials into place, reset the assembly line, and clean
the equipment. The holding cost of a refrigerator is $70 per year. The current production plan
calls for 500 refrigerators to be produced in each production run. Assume there are 250 working
days per year.
a) What is the daily demand of this product? 36 units
b) If the company were to continue to produce 500 units each time production starts, how many
days would production continue? 18days
c) Under the current policy, how many production runs per year would be required? What would
the annual setup cost be?13,500
d) If the current policy continues, how many refrigerators would be in inventory when
production stops? 1000. What would the average inventory level be? 200
e) If the company produces 500 refrigerators at a time, what would the total annual setup cost
and holding cost be? 63,000
f) If Bud Banis wants to minimize the total annual inventory cost, how many refrigerators should
be produced in each production run? How much would this save the company in inventory costs
compared to the current policy of producing 500 in each production run? 180 refrigerators/saving
3,150
Problem 3) (25 points)
Emery Pharmaceutical uses an unstable chemical compound that must be kept in an environment
where both temperature and humidity can be controlled. Emery uses 800 pounds per month of
the chemical, estimates the holding cost to be 35% of the purchase price (because of spoilage),
and estimates order costs to be $40 per order. The cost schedules of two suppliers are as follows:
Vendor 1
Vendor 2
Quantity
Price/LB
Quantity
Price/LB
1-499
$17
1-399
$17.00
500-999
16.65
400-799
16.50
1000+
16.35
800-1199
16
1200+
15.50
a) What quantity should be ordered for each vendor, and which vendor should be used?
For Vendor 1 is 333 units and for Vendor 2 is 332 Units/
Therefore, the best option is to
place the order with
Vendor 2
for an order size of
1,200 units
.
b) What is the total cost for the most economic order size?
The total cost for the most economic order size is
$7,880
. This is calculated
as follows:
Total cost = (D/Q)*S + (Q/2)*H
For Vendor 2:
D = 800 pounds per month
Q = 1,200 units
S = $40 per order
H = 35% of $16.00 per pound = $5.60 per pound per year
Total cost = (800*12/1,200)*40 + (1,200/2)*0.35*16
= $320 + $3,360
= $3,680
Total cost per year = $3,680*12 = $44,160
c) What factor(s) can be considered besides total cost?
Other factors that can be considered besides total cost include the quality of the chemical
compound, the reliability of the supplier, and the lead time for delivery.
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