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Test2PartialKey_F10.doc
MGMT 361: Fall 2010
Test 2
Question 2
[
20 points: 10, 15
]
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 Q = 8000/4 = 2000 units.
AIC(2000) = 100 * (8000/2000) + ½ * 2000 * 10 = 400 + 10000 = $10,400
Q0 = SQRT(2 * 8000 * 100 / 10) = 400.
AIC(400) = 100 * (8000/400) + ½ * 400 * 10 = 2000 + 0000 = $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.
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This note was uploaded on 01/31/2011 for the course MGMT 361 taught by Professor Panwalker during the Fall '10 term at Purdue University.
 Fall '10
 panwalker
 Management

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