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QUESTION 2 Toysrfun is a company that purchases toys from abroad for sale in Namibia. The company is concerned about inventory management operations. It is considering adopting an inventory management system based upon the EOQ model. The company's estimates of its inventory management costs are shown below: Storage costs Insurance Handling % Obsolescence Opportunity costs of funds invested in inventory Fixed costs associated with placing each order for inventory are N$311.54. 3 1 1 3 10 The purchase price of the toys to Toyzrfun N$4.50. There is a two-week delay between the time that new inventory is ordered from suppliers and the time that it arrives. Sales 12 000 16 000 20 000 24 000 The toys are sold by the company at N$6.30 each. The variable costs to Toyzrfun Ltd of selling is N$0.30 per unit. Demand for the toys from Toyzrfun's customers averages 10 000 units per week, but recently it has varies from 6 000 to 14 000 units per week. Based on the recent evidence, probability of unit sales in any two week period has been estimated as follows: 0.20 0.05 Probability 0.05 0.20 0.50 28 000 If adequate inventory is not available when demanded by Toyzrfun's customers in any two-week period,

QUESTION 2 Toysrfun is a company that purchases toys from abroad for sale in Namibia. The company is concerned about inventory management operations. It is considering adopting an inventory management system based upon the EOQ model. The company's estimates of its inventory management costs are shown below: Storage costs Insurance Handling % Obsolescence Opportunity costs of funds invested in inventory Fixed costs associated with placing each order for inventory are N$311.54. 3 1 1 3 10 The purchase price of the toys to Toyzrfun N$4.50. There is a two-week delay between the time that new inventory is ordered from suppliers and the time that it arrives. Sales 12 000 16 000 20 000 24 000 The toys are sold by the company at N$6.30 each. The variable costs to Toyzrfun Ltd of selling is N$0.30 per unit. Demand for the toys from Toyzrfun's customers averages 10 000 units per week, but recently it has varies from 6 000 to 14 000 units per week. Based on the recent evidence, probability of unit sales in any two week period has been estimated as follows: 0.20 0.05 Probability 0.05 0.20 0.50 28 000 If adequate inventory is not available when demanded by Toyzrfun's customers in any two-week period,

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
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QUESTION 2 Toysrfun is a company that purchases toys from abroad for sale in Namibia. The company is concerned about inventory management operations. It is considering adopting an inventory management system based upon the EOQ model. The company's estimates of its inventory management costs are shown below: Storage costs Insurance Handling % 3 1 1 3 10 Obsolescence Opportunity costs of funds invested in inventory Fixed costs associated with placing each order for inventory are N$311.54. The purchase price of the toys to Toyzrfun N$4.50. There is a two-week delay between the time that new inventory is ordered from suppliers and the time that it arrives. The toys are sold by the company at N$6.30 each. The variable costs to Toyzrfun Ltd of selling is N$0.30 per unit. Demand for the toys from Toyzrfun's customers averages 10 000 units per week, but recently it has varies from 6 000 to 14 000 units per week. Based on the recent evidence, probability of unit sales in any two week period has been estimated as follows: Sales 12 000 16 000 20 000 24 000 28 000 If adequate inventory is not available when demanded by Toyzrfun's customers in any two-week period, Probability 0.05 0.20 0.50 0.20 0.05
Transcribed Image Text:QUESTION 2 Toysrfun is a company that purchases toys from abroad for sale in Namibia. The company is concerned about inventory management operations. It is considering adopting an inventory management system based upon the EOQ model. The company's estimates of its inventory management costs are shown below: Storage costs Insurance Handling % 3 1 1 3 10 Obsolescence Opportunity costs of funds invested in inventory Fixed costs associated with placing each order for inventory are N$311.54. The purchase price of the toys to Toyzrfun N$4.50. There is a two-week delay between the time that new inventory is ordered from suppliers and the time that it arrives. The toys are sold by the company at N$6.30 each. The variable costs to Toyzrfun Ltd of selling is N$0.30 per unit. Demand for the toys from Toyzrfun's customers averages 10 000 units per week, but recently it has varies from 6 000 to 14 000 units per week. Based on the recent evidence, probability of unit sales in any two week period has been estimated as follows: Sales 12 000 16 000 20 000 24 000 28 000 If adequate inventory is not available when demanded by Toyzrfun's customers in any two-week period, Probability 0.05 0.20 0.50 0.20 0.05
(a) Ignoring taxation, calculate the optimum order level of inventory over a one-year planning period using the EOQ model. (b) Estimate the level of safety inventory that should be carried by Toyzrfun Ltd. (c) If Toyzrfun Ltd were to be offered a quantity discount by its suppliers of 1% for orders of 30 000 units or more, evaluate whether it would be beneficial for the company to take advantage of the quantity discount. Assume for this calculation that no safety inventory is carried. (d) Estimate the expected total annual costs of inventory management if the EOQ had been (i) 50% higher, and (ii) 50% lower than its actual level. Comment upon the sensitivity of total annual costs to changes in the EOQ.
Transcribed Image Text:(a) Ignoring taxation, calculate the optimum order level of inventory over a one-year planning period using the EOQ model. (b) Estimate the level of safety inventory that should be carried by Toyzrfun Ltd. (c) If Toyzrfun Ltd were to be offered a quantity discount by its suppliers of 1% for orders of 30 000 units or more, evaluate whether it would be beneficial for the company to take advantage of the quantity discount. Assume for this calculation that no safety inventory is carried. (d) Estimate the expected total annual costs of inventory management if the EOQ had been (i) 50% higher, and (ii) 50% lower than its actual level. Comment upon the sensitivity of total annual costs to changes in the EOQ.
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