Sample_quiz2_solutions

# Sample_quiz2_solutions - ESI 6323 Sample Questions for...

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Unformatted text preview: ESI 6323 Sample Questions for Second Test Problem 1. A manufacturing firm in Calgary produces an item using a 3-month time supply rule (i.e., each production lot covers 3 months of demand). An analyst, attempting to introduce a more logical approach to selecting run quantities, has obtained the following estimates of characteristics of the item: Annual demand rate D = 4000 units/year Fixed order cost S = \$5 Variable order cost c = \$4 per 100 units Holding cost rate h = 25% (annually) Assume the ordered amount is delivered instantaneously upon ordering. a) What is the EOQ of the item? EOQ = sqrt(2*5*4000/0.01) = 2000 b) What is the time between consecutive replenishments of the item when the EOQ is used? T * = EOQ/ D = 2000/4000 = ½ year c) The production manager insists that the S = \$5 figure was pulled out of the air, that is, it is only a guess. Therefore, she insists on using her simple 3-month supply rule. Determine the range of S values for which the EOQ (based on S = \$5) would be preferable (in terms of lower total ordering and holding costs) to the 3-month supply. 3-month rule: Q = 1000 Cost of 3-month rule = S * 4000/1000 + 0.01*1000/2 = 4 S + 5 EOQ at S = 5: 2000 Cost of Q = 2000: S *4000/2000 + 0.01*2000/2 = 2 S + 10. We need 2 S + 10 ≤ 4 S + 5, i.e., 2 S ≥ 5, or S ≥ \$2.50 1 Problem 2. The Wagner Company supplies electric motors to Electronic Distributors, Inc. on a delivered-price basis. Wagner has the responsibility for providing transportation. The traffic manager has three transportation service choices for delivery—rail, piggyback, and truck. He has compiled the following information: Transport Mode Transit Time, Days Rate, \$/Unit Shipment Size, Units Rail 16 25.00 10,000 Piggyback 10 44.00 7,000 Truck 4 88.00 5,000 Electronic Distributors purchases 50,000 units per year at a delivered contract price of \$500 per unit. Inventory carrying costs for both companies are 25 percent per year. Which mode of transportation should Wagner select? Rail Cycle stock cost = (0.25)*(500)*(10,000/2) = 625,000 Average pipeline inventory = (16/365)*(500)*(0.25)*(50,000) = 273,972.60 Transportation cost = 25*50,000 = 1,250,000 Total cost = \$2,148,972.60 Piggyback Cycle stock cost = (0.25)*(500)*(7,000/2) = 437,500 Average pipeline inventory = (10/365)*(500)*(0.25)*(50,000) = 171,232.88 Transportation cost = 44*50,000 = 2,200,000 Total cost = \$2,808,732.88 Truck Cycle stock cost = (0.25)*(500)*(5,000/2) = 312,500 Average pipeline inventory = (4/365)*(500)*(0.25)*(50,000) = 68,493.15 Transportation cost = 44*50,000 = 4,400,000 Total cost = \$4,780,993.15 2 Problem 3. The weighty trash bag company has the following price schedule for its large trash can liners. For orders of less than 500 bags, the company charges 30 cents per bag; for orders of 500 or more but fewer than 1,000 bags, it charges 29 cents per bag; and for orders of 1,000 or more, it charges 28 cents per bag (an all-units discount structure)....
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Sample_quiz2_solutions - ESI 6323 Sample Questions for...

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