COMM 225: POM

TOPIC 4: INVENTORY MANAGEMENT–

QUESTIONS (Tutorial)

Q1 (Ref: Q. 12-7, p509 of textbook): A fresh produce Q5 (Ref: Q. 12-36, p512 of textbook): The distribution
distributor uses 800 non-returnable packing crates a of demand for jelly doughnuts on Saturdays at a
month, which it purchases at a cost of$5 each. The doughnut shop is shown in the following table.
manager has assigned an annual holding cost of25 Determine the optimal number of doughnuts, in dozens,
percent of the purchase price per crate. Ordering cost is to make each Saturday morning if labour, materials, and
$28 per order. Currently the manager orders 800 crates overhead are estimated to cost $3.20 per dozen,
at a time. How much could the firm save annually in doughnuts are sold for S4.80 per dozen, and leftover
ordering and holding costs by using the EOQ? doughnuts at the end of each day are sold the next day
at half price. What is the resulting service level?
Q2 (Ref: Q. 12-12, p509 of textbook): A company is
about to begin production of a new product. The Demand
manager of the department that will produce one of the (dozens) Relative frequency
components for the product wants to know how often
19.00 0.01
his machine will be available for other work. The
machine will produce the item at a rate of 200 units a 20 0.05
day. Eighty units will be used daily in assembling the 21 0.12
final product. The company operates five days a week, 22 0.18
50 weeks a year. The manager estimates that it will take
almost a full day to get the machine ready for a 23 0.13
production run, at a cost of $300. Inventory holding cost 24 0.14
will be $10 per unit per year. 25 0.1
26 0.11
(a) What production run quantity should be used to
minimize total annual setup and holding cost?
27 0.1
(b) What is the length of a production run (in days)? 28 0.04
(c) During production, at what rate will inventory 29 0.02
buildup?
(d) If the manager wants to run another job between
Q6 (Ref: Q. 12.40, p513 of textbook): Demand for a
runs of this item, and needs a minimum of 10 days
specific type of cake at a local pastry shop can be
per cycle of this job for the other work, will there be
approximated using a Poisson distribution with a mean
enough time?
of six per day. The manager estimates it costs $9 to
prepare each cake. Fresh cakes sell for $12. Day-old
Q3 (Ref: Q. 12-16, p510 of textbook): A manufacturer of cakes sell for $7 each. What stocking level is appropriate?
exercise equipment purchases pulleys from a supplier
who lists these prices: less than 1,000, $5 each; 1,000 to
3,999, $4.95 each; 4,000 to 5,999, $4.90 each: and 6,000
or more, $4.85 each. Ordering cost is $50 per order,
annual holding cost is 20 percent of purchase cost, and
annual usage is 4,900 pulleys. Determine the order
quantity that will minimize total cost.

Q4 (Ref: Q. 12-23, p511 of textbook): The injection

moulding department of a company uses an average of
30 litres of a special lubricant a day. The lubricant is
replenished when the amount on hand is 170 litres. It
takes four days for an order to be delivered. The current
stock-out risk is 9 percent. What amount of safety stock
would be needed if the acceptable risk of stock-out is to
be reduced to 3 percent?