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#### Kutztown University Of Pennsylvania - MGM 351 Homework 8: Inventory Management 1)Houts Plastics is a large manufacturer of injection-molded plastics in North Carolina

###### Management

Kutztown University Of Pennsylvania - MGM 351

Homework 8: Inventory Management

1)Houts Plastics is a large manufacturer of injection-molded plastics in North Carolina. An investigation of the company’s manufacturing facility in Charlotte yields the information presented in the table below. How would the plant classify these items according to an ABC classification system?

1. Lead time for on of your fastest-moving products is 24 days. Demand during this period averages 105 units per day.

What would be an appropriate reorder point?

How does your answer change if demand during lead-time doubles?

How does your answer change if demand during lead-time drops in half?

1. Thomas Kratzer is the purchasing manager for the head quarter of a large insurance company chain with a central inventory operation. Thomas’s fastest- moving inventory item has a demand of 5,800 units per year. The cost of each unit is

\$104, and the inventory carrying cost is \$9 per unit per year. The average ordering cost is \$31 per order. It takes about 5 days for an order to arrive, and the demand for 1 week is 116 units. (This is a corporate operation, and there are 250 working days per year).

- What is the EOQ?

What is the average inventory EOQ?

• What is the optimal number of orders per year?
• What is the optimal number of days in between any two orders?
• What is the annual cost of ordering and holding inventory?

Annual Holding Cost ? Average Inventory =

Average Inventory x Holding Cost per Unit per Year =

Annual Order Cost ? Orders Per Year = Annual Demand/Q =5800/199.89 =

= 899.51+899.62 =

• What is the total annual inventory cost, including the cost the 5,800 units?

1.
 Annual Demand 2,500 Holding Cost per Bracket per year \$1.60 Order cost per Order \$18.00 Lead Time 2 Days Working Days per Year 250

Joe Henry’s Machines shop uses 2,500 brackets during the course of a year. These brackets are purchased from a supplier 90 miles away. The following information is known about the brackets:

• Optimal Order Equality: Q= √2DS/H Q= quantity

D= Annual Demand

S= Set up cost or Ordering Cost H= Holding Cost

• Expected Number of Orders: N= D/Q
• Expected Time Between Orders: T=# of working days/N
• Reorder Point = ROP = D x L L = Days

D = Annual Demand/ Working Days Per Year

1. Bell Computers purchases integrated chips at \$350 per chip. The holding cost is

\$34 per unit per year, the ordering cost is \$118 per order, and sales are steady at 395 per month. The company’s supplier, Rich Blue Chip Manufacturing, INC., decides to offer price concessions in order to attract larger orders.

6. Mr. Beautiful, and organization that sells weight training sets, has an ordering cost of \$45 for the BB-1 set (BB-1 stands for body beautiful number 1). They carrying cost for BB-1 is \$10 per set per year. To meet demand, Mr. Beautiful orders large quantities of BB-1 5 times a year. The stock out cost for BB-1 is estimated to be

 Demand During Lead Time Probability 100 .1 110 .2 120 .2 130 .2 140 .2

\$45 per set. Over the past several years, Mr. Beautiful has observed the following demand during the lead-time for BB-1.

The reorder point for BB-1 is 80 sets. What level of safety stock should be maintained for BB-1?

7. If the economic order quantity = 300 units, annual demand = 8,000 units, and order costs = \$45 per order, what is the holding cost?

## 3.83 USD

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