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MGMT 460: Partial Answers for Test 2 of Sp 08 and F07
Spring 2008 Test 2:
Question 2 [20 points: 8, 12]
Part (A):
EOQ
.
Demand for a product satisfying EOQ assumptions is 8000 units / year. Purchase price is
$40 /unit. Ordering cost is $100 and holding cost is $10/unit / year. Suppose your current policy is to
order every 3 months.
How much will you save annually if you order optimal quantity
(round off
optimal number within 5%, if needed)?
Current Policy:
Order every 3 months, i.e. Q = 8000/4 = 2000 units.
AIC(2000) = 100 * (8000/2000) + ½ * 2000 * 10 = 400 + 10000 = $10,400
Optimal quantity = Q
0
= SQRT(2 * 8000 * 100 / 10) = 400.
AIC(400) = 100 * (8000/400) + ½ * 400 * 10 = 2000 + 2000 = $4000.
So there will be annual saving of $6400.
Part (B):
EOQ with discounts
Demand for a product satisfying EOQ assumptions is 12000 units / year. Purchase price is $50 /unit.
Ordering cost is $180
and holding cost is
$12.0/unit / year. The
vendor is willing to
give you 3% discount
if you buy at least
3000 units in a lot.
The discount is 5% if
you buy at least
6000. How many
units should you buy
in a lot and what is
the annual total cost?
Note that holding cost is not affected by the discount. You can show calculations in the last
column for dark cells. For other cells, you can write the answers.
Answer: Order 3000 units. Annual cost = $600,720.
Question 3 [20 points: 5, 3 + 8 + 4]:
Part (A): Lot sizing
Complete all calculations in the table using “POQ 4” policy
. On hand inventory at the end of period 0
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This note was uploaded on 01/21/2011 for the course MGMT 460 taught by Professor Staff during the Fall '08 term at Purdue UniversityWest Lafayette.
 Fall '08
 Staff
 Management

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