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MAN 3506: Operations Management

Chapter 13: Solution to selected problems


Text: W.J. Stevenson, 11th Edition

4. d = 40 boxes/day, so D = 40 boxes/day x 260 days/yr. = 10,400 boxes/year


S = $60 /order
H = $30 / box/ yr.
2DS 2(10,400)60
a. Q0    203.96  204 boxes
H 30
Q D
b. TC  H S
2 Q
204 10,400
 (30)  (60)  3,060  3,058.82  $6,118.82
2 204
c. Yes
200 10,400
d. TC 200  (30)  (60)
2 200
TC200 = 3,000 + 3,120 = $6,120
6,120 – 6,118.82 (only $1.18 higher than with EOQ, so 200 is acceptable.)

5. d = 750 pots/month, so D = 750 pots/mo. x 12 mo./yr. = 9,000 pots/year


Price = $2/pot
H = ($2)(.30) = $.60/pot/year
S = $20 /order
2DS 2(9,000) 20
a. Q0    774.60  775
H .60
774.6 9,000
TC  (.60)  ( 20)
2 774.6
TC = 232.35 + 232.36
= 464.71
If Q = 1500

1,500 9,000
TC  (.6)  (20)
2 1,500
TC = 450 + 120 = $570
Therefore the additional cost of staying with the order size of 1,500 is:
$570 – $464.71 = $105.29
b. Only about one half of the storage space would be needed.
6. d = 800 crates/month, so D = 12(800) = 9,600 crates/year
H = .35P = .35($10) = $3.50/crate/yr.
S = $28/order
800 9,600
Present TC : (3.50)  (28)  $1,736
2 800
2 DS 2(9,600)$28
a. Q0    391.92 [round to 392]
H $3.50
392 9,600
TC at EOQ: (3.50)  (28)  $1,371.71.
2 392
Savings = $1,736 - $1,371.71 = $364.29 per year.

13. D= 18000 boxes/year


S = $96/order
H= $0.60/box/year

Number of Price per H EOQ Valid Q TC = D/Q*S + Q/2*H +


boxes box (P) PD
1000-1999 1.25 0.60 2400 1999 23964.13

2000-4999 1.20 0.60 2400 2400 23040.00

5000-9999 1.15 0.60 2400 5000 22545.60


Optimal Least Total Cost (TC)
Quantity
10000 or 1.10 0.60 2400 10000 22972.80
more

Number of orders per year = D/Q = 18000/5000 = 3.6 times/year


15. D= 4900 pulleys/year
S = $50/order
H= 40% of price / pulley/year

Number of Price per H EOQ Valid Q TC = D/Q*S + Q/2*H +


Pulleys box (P) PD
< 1000 5.00 2.00 494.97 = 495 25489.95
495 Optimal Least Total Cost (TC)
Quantity
1000-3999 4.95 1.98 497.47 = 1000 25490.00
497 Can use this Almost same as above
Q also
4000-5999 4.90 1.96 500 4000 27991.25

>= 6000 4.85 1.94 502.57 = 6000 (more _____


503 than 4900)

16. d = 800 remotes/month; so D= 12 x 800 = 9600 remotes/year


S = $40/order
H= 25% of price / remote/year

SUPPLIER A

Number of Price per H EOQ Valid Q TC = D/Q*S + Q/2*H +


Remotes Remote (P) PD
1-199 14.00 3.50 468.43 = 199 136677.90
468
200-499 13.80 3.45 471.81 = 472 134107.76
472
500 and 13.60 3.40 475.27 = 500 132178.00
more 475 Optimal Least Total Cost (TC)
Quantity

SUPPLIER B

Number of Price per H EOQ Valid Q TC = D/Q*S + Q/2*H +


Remotes Remote (P) PD
1-149 14.10 3.53 466.44 = 149 138200.17
466
150-349 13.90 3.48 469.78 = 349 133440.00
470
350 and 13.70 3.43 473.19 = 473 133143.03
more 473

Buy 500 per order from Supplier A to get the least total cost
26 (a,b).

d= 5 boxes/week
D = 52 weeks/year x 5 boxes/week = 260 boxes/year
S= $2 /order
H= $0.20/box/year

EOQ = 72.11 = 72 boxes (rounded).

When only demand is variable (see p.581, equation 13-13)


Reorder point = ROP = 12
Lead time = LT = 2
average weekly demand d = 5
standard deviation of weekly demand = σd = 0.5

Step1:
ROP = (d x LT) + (z σd √LT)
12 = (5x2) + (z x 0.5 x √2)
z = 2.8285 = 2.84 approximately

Step 2: area under the normal curve


lead time service level = 0.9977 (from Table 13.3 on page 583, same as appendix B p. 881 standardized
normal distribution tables) = 99.77%

Step 3: risk of stock out


See red colored area under the curve in Figure 13.13 p.580
service level = 100 – stockout risk (see p. 579)
99.77 = 100 – stockout risk
Stockout risk = 100 – 99.77 = 0.23% = 0.0023

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