Production and Operations Analysis, Seventh Edition
7th Edition
ISBN: 9781478623069
Author: Steven Nahmias, Tava Lennon Olsen
Publisher: Waveland Press, Inc.
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Chapter 4.4, Problem 4P
(a)
Summary Introduction
Interpretation: Total handling cost incurred by the organization during the period of January to August is to be determined.
Concept Introduction:Total handling cost refers to the cost which includes goods and services along with the time and labor.
(b)
Summary Introduction
Interpretation: The average annual cost of holding trucks is to be determined.
Concept Introduction:
The cost of holding inventory (the cost of carrying inventory) refers to the cost that an organization spends during the time. The holding inventory cost includes owing, keeping, and storing the inventory in stocks.
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A paint shop implements an inventory policy on its stock of white paint, which costs the store $6 per can. Monthly demand for cans of white paint is normal with mean 28 and standard deviation 8. The replenishment lead time is 14 weeks. Excess demand is backordered, but costs $10 per back ordered can in labor and loss of goodwill. There is a fixed cost of $15 per order, and the holding cost is based on 30% interest rate per annum. In your computations, assume 4 weeks per month.
- Write down the model name and parameters.
- What are the optimal lot size and reorder points for white paint (include the formulas)?
- What is the optimal safety stock (include the formula)?
*** Suppose the paint shop from the above problem adopts a service level policy.
- What are the optimal lot size and reorder points for white paint, such that 90% of the cycles are filled without backordering (include all formulas)?
- What is the fill rate…
Buckley Enterprise sells a product that cost $450 per unit and has a monthly demand of 5,000units. The annual holding cost per unit is calculated as 5% of the unit purchase price. It costs thebusiness $75 to place a single order. Currently the business places 12 orders each year.i) What is the total stock administrative cost of Buckley’s current inventory policy?ii) Is this the entity’s cost minimizing solution for this product each year? Explain.
Buckley Enterprise sells a product that cost $450 per unit and has a monthly demand of 5,000 units. The annual holding cost per unit is calculated as 5% of the unit purchase price. It costs the business $75 to place a single order. Currently the business places 12 orders each year.
i) What is the total stock administrative cost of Buckley’s current inventory policy?
ii) Is this the entity’s cost minimizing solution for this product each year? Explain.
Chapter 4 Solutions
Production and Operations Analysis, Seventh Edition
Ch. 4.4 - Prob. 1PCh. 4.4 - Prob. 2PCh. 4.4 - Prob. 3PCh. 4.4 - Prob. 4PCh. 4.4 - Prob. 5PCh. 4.4 - Prob. 6PCh. 4.4 - Prob. 7PCh. 4.4 - Prob. 8PCh. 4.4 - Prob. 9PCh. 4.5 - Prob. 10P
Ch. 4.5 - Prob. 11PCh. 4.5 - Prob. 12PCh. 4.5 - Prob. 13PCh. 4.5 - Prob. 14PCh. 4.5 - Prob. 15PCh. 4.5 - Prob. 16PCh. 4.6 - Prob. 17PCh. 4.6 - Prob. 18PCh. 4.6 - Prob. 19PCh. 4.6 - Prob. 20PCh. 4.7 - Prob. 21PCh. 4.7 - Prob. 22PCh. 4.7 - Prob. 23PCh. 4.7 - Prob. 24PCh. 4.7 - Prob. 25PCh. 4.8 - Prob. 26PCh. 4.8 - Prob. 27PCh. 4.8 - Prob. 28PCh. 4.9 - Prob. 29PCh. 4.9 - Prob. 30PCh. 4 - Prob. 31APCh. 4 - Prob. 32APCh. 4 - Prob. 33APCh. 4 - Prob. 34APCh. 4 - Prob. 35APCh. 4 - Prob. 36APCh. 4 - Prob. 37APCh. 4 - Prob. 38APCh. 4 - Prob. 39APCh. 4 - Prob. 40APCh. 4 - Prob. 41APCh. 4 - Prob. 42APCh. 4 - Prob. 43APCh. 4 - Prob. 44APCh. 4 - Prob. 45AP
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- Royal Meat Processing Company buys and processes livestock for sale to supermarkets. In connection with the audit of the company’s financial statements, you have prepared the following notes based on your review of inventory procedures: 1. Each livestock buyer submits a daily report of his or her purchases to the plant superintendent. This report shows the dates of purchase and expected delivery, the vendor and the number, and weights and type of livestock purchased, as shipments are received, any available plant employee counts the number of each type received and places a check mark beside this quantity on the buyer’s report. 2. Vendors’ invoices, after a clerical review, we sent to the appropriate buyer for approval and returned to the accounting department. A disbursement voucher and a check for the approved amount the prepared in the accounting department. Checks are forwarded to the treasurer for signature. The treasurer’s office sends signed checks directly to the buyer for…arrow_forwardYour supplier gives you a quantity discount if you buy at least 500 units at a time, a price of $4.90. Your ordering cost is $30, and the interest rate is 22% of the unit cost. Annual demand is 2,000, so the EOQ is 334. Calculate the total costs (consisting of holding, ordering, and cost of goods), assuming that you buy at least enough to get the quantity discount.arrow_forwardThe book and paper store also distributes a city guidebook that is ordered from the publisher when needed. The purchase cost is $60. and the store must assume a lead - time of three months from the order is placed and the guidebooks arrive. The store reckon for an annual interest rate of 20 % to compute holding costs, and estimates a cost of $40. for a lost sale if the guidebook is requested when they are out of stock. The expense of placing an order is set to $100.The demand of the guidebook can vary a great deal, but the average during a three - month period has been calculated to 125. The demand can be described by a normal distribution and the standard deviation is 15. Find the optimal value of the lot size, Q, and the reorder point, R, in this case.arrow_forward
- )Haulsee Inc. builds 800,000 golf carts a year and purchases the electronic motors for these carts for $370 each. Ordering costs are $540, and Haulsee's inventory carrying costs average 14% of the inventory value. What is the EOQ for Haulsee? d) Alpha Products maintains a capital structure of 40% debt and 60% common equity. To finance its capital budget for next year, the firm will sell $50 million of 11% debentures at par and finance the balance of its $125 million capital budget with retained earnings. Next year Alpha expects net income to grow 7% to $140arrow_forwardWhat is the relationship between the average inventory and the in-stock probability?a. The more the inventory, the lower the in-stock probability.b. There isn’t a definitive relationship—more inventory could mean a lower or a higherin-stock probability.c. The more the inventory, the higher the in-stock probability.arrow_forward1. Demand is Normally distributed with a mean of 66 per week and a weekly variance of 3. The ordering cost is $57.5. Lead time is 8 weeks. Shortages cost an estimated $4.14 per unit short to expedite orders to appease customers. The holding cost is $7.06 per week. Estimate the stockout risk if the target service level is 0.22. 2. Demand is Normally distributed with a mean of 43 per week and a weekly variance of 8. The ordering cost is $83.26. Lead time is 4 weeks. Shortages cost an estimated $1.96 per unit short to expedite orders to appease customers. The holding cost is $9.2 per week. Calculate ROP if the target service level is 95%.arrow_forward
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