Exam 21: Special Inventory Models

Scenario D.1 Jerry Allison is in charge of production for a small producer of plumbing supplies.The cricket model has an estimated annual demand of 12,000 units and can be produced at a production rate of 90 units per day.The company produces (and sells)the cricket 300 days per year.Setup cost to produce this model averages $22 and the item has a holding cost of $3 per unit per year. -Use the information in Scenario D.1.What is the economic production lot size (ELS)?

Why are there discontinuities (areas where the curve jumps up or down and is not smooth)in the total cost curve in the quantity discount model?

A world traveler prepares to leave the comforts of home for a back to nature visit to Gilligan's Island,where all transactions are conducted in coconuts and the banking system is completely undeveloped.The traveler can buy cocoanuts for $2 each before the journey.If he fails to bring enough cocoanuts with him and runs out,he must get some cocoanuts flown in at a cost of $5 each.If he finishes his vacation and has leftover cocoanuts he can cash them in when he returns home,but will receive only $1.50 per cocoanut.What is his loss per unit if he overstocks on cocoanuts prior to leaving home?

A pencil supplier just introduced quantity discounts.The price schedule follows. XYZ store's annual demand remains at 500 units and ordering cost at $10 per order.If annual holding cost is 10 percent of the pencils' per-unit price,what order quantity should XYZ select to minimize all costs?

Which one of the following statements about quantity discounts is best?

Scenario D.2 Kyle store sells K2 skis.The store makes a $200 profit per unit sold during the ski season,but it should take a $50 loss per unit if sold after the season is over.The following discrete probability distribution has been estimated for the season's demand. -Use the information in Scenario D.2..What is the best order quantity?

Which of these statements about the one-period model is best?

Briefly explain why the economic production lot size (ELS)is actually larger than the EOQ when there are noninstantaneous replenishments.

The one-period inventory model is commonly known as the newsboy problem.

Scenario D.3 Consider an item with the following discrete demand distribution for a one-time inventory decision. This item experiences a seasonal demand pattern.A profit of $15 per unit is made if the item is sold in season,but a loss of $10 per unit is incurred if sold after the season is over. -Use the information in Scenario D.3.What is the order quantity with the highest expected payoff?

In a noninstantaneous replenishment model,as the daily demand approaches the daily production rate,

Scenario D.1 Jerry Allison is in charge of production for a small producer of plumbing supplies.The cricket model has an estimated annual demand of 12,000 units and can be produced at a production rate of 90 units per day.The company produces (and sells)the cricket 300 days per year.Setup cost to produce this model averages $22 and the item has a holding cost of $3 per unit per year. -Use the information in Scenario D.1.If Jerry chooses to produce batches dictated by the economic production lot size (ELS)model,how many days elapse between the start of consecutive production runs (what is the time between runs or TBO)?

When do one-period decisions on inventory arise in practice?

Warren's Ice Cream makes 4 different flavors of ice cream using their secret process and top secret recipes.Each of their flavors is equally popular and experiences a demand of 5000 gallons/year.Warren's process is capable of producing 100 gallons/day once they incur the $25 setup cost.The ice cream holding cost is 10% of the $5 per gallon price.Warren's plant runs 250 days a year and stays busy doing so but management feels they can add another flavor to their product line and increase their revenue.Which of the following statements is appropriate for this scenario?

Scenario D.3 Consider an item with the following discrete demand distribution for a one-time inventory decision. This item experiences a seasonal demand pattern.A profit of $15 per unit is made if the item is sold in season,but a loss of $10 per unit is incurred if sold after the season is over. -Use the information in Scenario D.3.What is the payoff when 40 units are ordered but a demand of 30 materializes?

The ________ is the optimal lot size in situations in which replenishment is not instantaneous.

A production manager uses the economic lot size approach to determine the batch size for a product with an annual demand of 20,000 units per year.The setup cost for each batch is $50 and once the setup is complete,the product may be produced at the rate of 800 units per day.There is a holding cost of $2 per unit per year and the plant operates on a 250-day production year.If the machine used to produce this product is needed for another item and it takes one day to set up regardless of product,how many production days are available for production of the new item?

For analysis using the economic production lot size (ELS)model to be useful,the producer must be able to produce the item faster than it is consumed.

Scenario D.1 Jerry Allison is in charge of production for a small producer of plumbing supplies.The cricket model has an estimated annual demand of 12,000 units and can be produced at a production rate of 90 units per day.The company produces (and sells)the cricket 300 days per year.Setup cost to produce this model averages $22 and the item has a holding cost of $3 per unit per year. -Use the information in Scenario D.1.What is the maximum inventory if Jerry chooses to produce at the economic production lot size (ELS)?

Scenario D.3 Consider an item with the following discrete demand distribution for a one-time inventory decision. This item experiences a seasonal demand pattern.A profit of $15 per unit is made if the item is sold in season,but a loss of $10 per unit is incurred if sold after the season is over. -Use the information in Scenario D.3.What is the payoff when 40 units are ordered but a demand of 50 materializes?