HW #4 - TC 100,000 = $2504084 So ordering 10,000 units...

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Chris Martin 28 February 2007 Operations Management Tue/Thur 2-4 pm Homework 4 1. Though modularization is applicable to many car components, the notion of customers completely customizing their cars before the modularized components are used to construct the car makes no sense. If a customer were to specify all of his or her wants, it would take a LONG time for the factory to then acquire all of the specified parts and construct just one personalized automobile. Therefore, the common practice is for customers to name a few preferences and dealers can do a search through their own inventory, and often times, through other dealers’ inventories to help find customers the car closest to what they want. 2. EOQ = 22 3. (a) EOQ = 100 (b) EOQ = 100 units 4. (a) EOQ = 2049 (b) Total Annual Inventory Cost = $2408198 (c) Avg. Daily Demand = 328.77 Reorder point = (328.77)(3) = 986 units (d) Number of Inventory Turns per Year = 117 (e) TC 10,000 = $2348840
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Unformatted text preview: TC 100,000 = $2504084 So ordering 10,000 units minimizes cost and is therefore more preferable than ordering 100,000 units. (f) Total annual inventory costs = $2348840 (g) Inventory turn = 24. This is lower than the inventory turn when ordering from Accurate Gears because there is a trade off between the savings from Precise Gears’ quantity discount offer with the higher cost of storing the inventory for longer. 5. Annual demand = 6000 boxes of truffles per year When shipping costs are $15 and cost per truffle box is $12, the EOQ = 300. The corresponding TC = $72,600 When shipping costs are $20 and the cost per truffle box is $11, the EOQ = 346 The corresponding TC = $66,693 When shipping costs are $25 and the cost per truffle box is $10, the EOQ = 387 The corresponding TC = $60,850 Therefore, the optimal order quantity is 600 truffle boxes per order, which gives an annual cost of $60,850....
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