Exam 10: Inventory Models

The Super Discount store (open 24 hours a day,every day)sells 8-packs of paper towels,at the rate of approximately 420 packs per week.Because the towels are so bulky,the annual cost to carry them in inventory is estimated at $0.50.The cost to place an order for more is $20,and it takes four days for an order to arrive. a.Find the optimal order quantity. b.What is the reorder point? c.How often should an order be placed?

Annual purchase cost is included in the total cost in

For the EOQ model,cycle time is the time between

In the single-period inventory model with probabilistic demand,

The time between placing orders is the lead time.

The Fitness Shop is considering ordering a special model exercise machine.Each unit will cost the shop $410,and it will sell for $750.Any units not sold at the regular price will be sold at the year-end model clearance for $340.Assume that demand follows a normal probability distribution with μ = 20 and σ = 6.What is the recommended order quantity?

The single-period inventory model is most applicable to items that are perishable or have seasonal demand.

Safety stock

To be considered inventory,goods must be finished and waiting for delivery.

Demand for a popular athletic shoe is nearly constant at 800 pairs per week for a regional division of a national retailer.The cost per pair is $54.It costs $72 to place an order,and annual holding costs are charged at 22% of the cost per unit.The lead time is two weeks. a.What is the EOQ? b.What is the reorder point? c.What is the cycle time? d.What is the total annual cost?

Chez Paul Restaurant orders special Styrofoam "doggy bags" for its customers once a month,and lead time is one week.Weekly demand for doggy bags is approximately normally distributed with an average of 120 bags and a standard deviation of 25.Chez Paul wants at most a 3% chance of running out of doggy bags during the replenishment period.If he has 150 bags in stock when he places an order,how many additional bags should he order? What is the safety stock in this case?

In a periodic review model,inventory is checked and reordering is done only at specified points in time,such as on a weekly,biweekly,monthly,or some other periodic basis.

Bank Drugs sells Jami Michelle lipstick.Jami Michelle Company offers a 6% discount on orders of at least 500 tubes,a 10% discount on orders of at least 1000 tubes,a 12% discount on orders of at least 1800 tubes,and a 15% discount on orders at least 2500 tubes.​ Bank sells an average of 40 tubes of Jami Michelle lipstick weekly.The normal price paid by Bank Drugs is $1 per tube.If it costs Bank $30 to place an order and Bank's annual holding cost rate is 27%,determine the optimal order policy for Bank Drugs.

At the optimal order quantity for the quantity discount model,the sum of the annual holding and ordering costs is minimized.

Which of the following would NOT be considered part of a holding cost?

Inventory position is

An assumption in the economic production lot size model is that there is storage capacity to hold the entire production lot.

The terms "inventory on hand" and "inventory position" have the same meaning.

The EOQ model

Non-Slip Tile Company (NST)has been using production runs of 100,000 tiles,10 times per year to meet the demand of 1,000,000 tiles annually.The setup cost is $5000 per run,and holding cost is estimated at 10% of the manufacturing cost of $1 per tile.The production capacity of the machine is 500,000 tiles per month.The factory is open 365 days per year.​ a.What production schedule do you recommend? b.How much is NST losing annually with its present production schedule? c.What is the maximum number of tiles in inventory under the current policy? Under the optimal policy? d.What fraction of time is the machine idle (not producing tiles)under the current policy? Under the optimal policy?