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Question 13 The annual demand for a particular chemical product is 1,200 units. Suppose that the annual holding cost is $24 per unit, and the ordering cost is $100. Part A: Find the optimal order quantity based on EOQ analysis, and calculate the combined annual ordering and holding cost. Part B: Now suppose that the store manager finds out that the demand has been underestimated. Specifically, the correct annual demand is 1,500 units. On the other hand, due to operational restrictions she cannot change the order quantity and thus use the same order size from part A. How much this error cost the store? (This can also be considered as a penalty for parameter misestimation).

Question 13 The annual demand for a particular chemical product is 1,200 units. Suppose that the annual holding cost is $24 per unit, and the ordering cost is $100. Part A: Find the optimal order quantity based on EOQ analysis, and calculate the combined annual ordering and holding cost. Part B: Now suppose that the store manager finds out that the demand has been underestimated. Specifically, the correct annual demand is 1,500 units. On the other hand, due to operational restrictions she cannot change the order quantity and thus use the same order size from part A. How much this error cost the store? (This can also be considered as a penalty for parameter misestimation).

Purchasing and Supply Chain Management
Purchasing and Supply Chain Management
6th Edition
ISBN:9781285869681
Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Chapter16: Lean Supply Chain Management
Section: Chapter Questions
Problem 10DQ: The chapter presented various approaches for the control of inventory investment. Discuss three...
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Question 13

The annual demand for a particular chemical product is 1,200 units. Suppose that the annual

holding cost is $24 per unit, and the ordering cost is $100.

Part A: Find the optimal order quantity based on EOQ analysis, and calculate the combined

annual ordering and holding cost.

Part B: Now suppose that the store manager finds out that the demand has been underestimated.

Specifically, the correct annual demand is 1,500 units. On the other hand, due to operational

restrictions she cannot change the order quantity and thus use the same order size from part A.

How much this error cost the store? (This can also be considered as a penalty for parameter

misestimation).

Question 13 The annual demand for a particular chemical product is 1,200 units. Suppose that the annual holding cost is $24 per unit, and the ordering cost is $100. Part A: Find the optimal order quantity based on EOQ analysis, and calculate the combined annual ordering and holding cost. Part B: Now suppose that the store manager finds out that the demand has been underestimated. Specifically, the correct annual demand is 1,500 units. On the other hand, due to operational restrictions she cannot change the order quantity and thus use the same order size from part A. How much this error cost the store? (This can also be considered as a penalty for parameter misestimation).
Transcribed Image Text:Question 13 The annual demand for a particular chemical product is 1,200 units. Suppose that the annual holding cost is $24 per unit, and the ordering cost is $100. Part A: Find the optimal order quantity based on EOQ analysis, and calculate the combined annual ordering and holding cost. Part B: Now suppose that the store manager finds out that the demand has been underestimated. Specifically, the correct annual demand is 1,500 units. On the other hand, due to operational restrictions she cannot change the order quantity and thus use the same order size from part A. How much this error cost the store? (This can also be considered as a penalty for parameter misestimation).
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