More_Sample_Inventory_Problems

# More_Sample_Inventory_Problems - More Sample Inventory...

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More Sample Inventory Problems Note: Refer to the Inventory Thumbnail Notes

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Economic Production Quantity Example Lambda Optics makes microscopic lens housings. The housings can be produced at a rate of 200,000 units/yr. Annual demand is 100,000 units/yr. Each production run costs \$5,000 to set up, and the annual cost of holding items in inventory is \$.20 The variable cost to produce an item is \$10. Find the optimal quantity to produce.
Economic Production Quantity Example (cont.) Here, A = 100,000 (annual demand) B = 200,000 (annual production rate) k = 5,000 (setup cost) h = .20 (holding cost/\$) c = 10 (unit production cost) See Excel output on the next slide.

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Fixed Set-Up Cost per Run: k = \$ 5,000.00 Annual Number of Items Demanded: A = 100,000 Annual Production Rate: B = 200,000 Variable Production Cost per Unit: c = \$ 10.00 Annual Holding Cost per Dollar Value: h = \$ 0.20 Decision Variables: Economic Production Quantity: Q = 31,622.78 Results: Time Between Production Runs (year): T = 0.32 Duration of Production Run (year): T1 = 0.16 Total Annual Relevant Cost: TC = \$ 31,623
Order Quantity, etc. Based on the Excel output, the order quantity is 31,622.78, so we round to 31,623. Each production run lasts .16 yrs. The time between production runs is .32 yrs. The total relevant annual cost is \$31,623.

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EOQ w/Backorder Example The House of Fine Wines sells a special Chilean variety. Annual demand for the wine is 1,000 cases. The cost per bottle is \$20, and it costs \$.20/\$ per year to hold a case in inventory. The fixed order cost is \$100. Cases may be placed on backorder, with a shortage penalty of \$3.65/case. Find the optimal policy for the House of Fine Wines.
EOQ w/Backorder Example (cont.) Here, A = 1,000 (annual demand) p = 3.65 (annual shortage penalty/case) k = 100 (order cost) h = .20 (holding cost/\$) c = 20 (unit procurement cost) See Excel output on the next slide.

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## This note was uploaded on 12/02/2011 for the course QM 670 taught by Professor Dr.keeney during the Fall '11 term at Jefferson College.

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More_Sample_Inventory_Problems - More Sample Inventory...

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