INVENTORY Q1.

The production dept of a company requires 3600 kg of raw material for manufacturing a particular item per year. It has been estimated that cost of placing an order is Rs36.00 and the cost of carrying inventory is 25% of the investment in inventory, the price is Rs10.00 per kg. The purchase manager wishes to determine EOQ and minimum annual cost of inventory management? Q2. Each unit of an item costs a company Rs 40.00. Annual holding costs are 18% of unit cost for interest, 1% for insurance, 2% allowance for obsolescence, Rs 2.00 for building overheads, Rs1.50 for damage and loss and Rs 4.00 for miscellaneous costs. Annual demand for item is constant 1000 units and each order costs Rs 100.00 to place. Calculate the EOQ and total annual costs of inventory management Q3. In a central grain store, it takes 15 days to get stock after placing an order and daily 500 tons are dispatched to neighboring markets. On an ad hoc basis safety stock is assumed to be 10 days stock. Calculate the Re Order Point. Q4. A tractor manufacturing company has calculated that 16 spare engines will result into a stock out risk of 25% while 20 will reduce the risk to 15% and 24 to 10%. The lead time is three months and average usage is six engines per month. What should be the Re Order Level (ROL) to maintain 85% service level? Q5. The average yearly consumption for an item is 3600 units and the normal lead time is one month. If the maximum consumption has been up to 4800 units per year and the maximum lead time is two months, what should be the buffer stock of the item? For an item following information is provided, Annual requirement: 8000 units, ordering cost Rs 180 per order, inventory carrying cost: 10% per annum, price schedule as follows Order quantity Price Rs per unit 1999 units 22.00 1000 1499 units 20.00 1500 1999 units 19.00 2000 and above 18.50 Determine the best order size Best order size: ordering quantity 2000 units with price Rs 18.50 per unit as TIC is lowest) (First we need to fix up EOQ based on each option of ordering quantity and applicable price. Only EOQ calculated with price per unit as Rs 20 is OK for both purchaser and supplier. The remaining calculations for TIC are as usual Options Acquisition cost Rs Ordering cost Rs Inv. carrying cost Rs Total inv. cost Rs EOQ = 1200 and price 160,000 1200 1200 162,400 Rs 20 per unit OQ = 1500 and price 152,000 960 1425 154,385 Rs 19 per unit OQ = 2000 units and 148,000 720 1850 150,570 * * price Rs 18.50 per unit

Q6. For an item following information is provided, Annual requirement: 192,000 units, ordering cost: Rs 2160 per order, inventory carrying cost Rs 7.20 per unit per year, procurement rate: 1000 per day, consumption rate: 800 units per day (a) Calculate EOQ, maximum inventory and total minimum inventory cost assuming procurement and consumption are simultaneous (b) Calculate EOQ, if procurement is done one lot and what will be increase in cost then? Answer: (a) EOQ when procurement and consumption is simultaneous = 24000 units (b) EOQ when procurement is done in one lot = 10733 units Total variable cost when procurement and consumption is simultaneous Rs 34560 Total variable cost when procurement is in one lot Rs 77279 Hence extra cost in one lot procurement Rs 42719) Q7. For an item, following information is provided, Annual requirement: 10000 units, ordering cost; Rs 10 per order, inventory carrying cost 20% per annum, and price: Rs 20 per unit, shortage cost Rs 5 per unit per year Based on above data, answer following a) Calculate EOQ, if shortages are not allowed b) Calculate EOQ if shortages are allowed and quantity to be back-ordered c) What will be saving in cost if back-ordering is permitted, if any? Answer: a) EOQ when shortages are not allowed = 223.6 units b) EOQ when shortages are allowed = 300 units, quantity to be back-ordered 133.3 units c) Total variable cost when shortages are not allowed Rs 894.43 Total variable cost when shortages are allowed Rs 666.67 Hence saving = Rs 227.76 (when back-orders are permitted)

Q8. A computer manufacturing firm sells a particular brand of personal computer. The ordering cost per order is Rs 450.00 and annual inventory carrying cost is Rs 170.00/unit/year. The stores manager estimates the annual demand for the PC to bb 1200 units. (a) Determine the optimal order quantity and total minimum inventory cost (b) Assume the shortages are allowed and the shortages cost is Rs 600.00/unit/year. Compute the order quantity and the total minimum inventory cost. Q9. A computer store stocks color monitors for which the daily demand is normally distributed with a mean of 2 monitors and a standard deviation of 0.5 monitors. The lead time to receive an order from the vendor is 15 days. Determine the reorder point with 98% service level {ROL = dave X Lave + Z [ d2 Lave + L2 (dave)2 ]} Q10. A hospital stocks a medical kit that has normally distributed demand during the reorder period (lead time). The mean (average) demand during the reorder period (lead time) is 350 kits

with the standard deviation of 20 kits. The hospital follows a policy that results in stock outs occurring only 5% of the time. (a) How much safety stock the hospital maintain? (b) What ROL must be used?