Chapter 13 – Inventory Management
13–11
Education.
Step 1:
Determine the Annual Dollar Value (Usage * Unit Cost) for each item and the sum of the
individual Annual Dollar Values.
Item
Usage
Unit Cost
Annual Dollar
Value
4021
90
$1,400
$126,000
9402
300
12
3,600
4066
30
700
21,000
6500
150
20
3,000
9280
10
1,020
10,200
4050
80
140
11,200
6850
2,000
10
20,000
3010
400
20
8,000
4400
5,000
5
25,000
228,000
Step 2:
Arrange the items in descending order based on Annual Dollar Values. Determine the A, B,
and C items. Then, determine the percentage of items and the percentage of Annual Dollar
Value for each category (round to two decimals).
Item
Annual
Dollar Value
Percentage
of Items
Percentage of Annual
Dollar Value
4021
$126,000
11.11%
[(1/9)*100]
55.26%
[$126,000/$228,000)*100]
4400
25,000
33.33%
[(3/9)*100]
28.95%
[$66,000/$228,000)*100]
4066
21,000
6850
20,000
4050
11,200
55.56%
[(5/9)*100]
15.79%
[$36,000/$228,000)*100]
9280
10,200
3010
8,000
9402
3,600
6500
3,000
228,000
100.00%
100.00%
c. Determine the percentage of items in each category and the annual dollar value for each
category.
Reference table above.
13–14
Education.
5. Given:
D = 750 pots/mo. x 12 mo./yr. = 9,000 pots/yr.
C = $2. H = (.30)($2) = $.60/unit/year
S = $20
Note: Round the EOQ to an integer value, but round any other values to a maximum of two
decimals.
a. Determine the additional annual cost for using Q = 1,500:
Step 1:
60.
0 H
Step 3:
Determine total cost for Q = 775.
b. The benefit of using the EOQ is that about one half of the storage space would be needed.
6. Given:
D = 12 * 800 = 9,600
H = .35($10) = $3.50 per crate per year
S = $28
Chapter 13 – Inventory Management
13–17
Education.
Monthly TC (Q = 150):
(
) +(
) = (
).+(
) = $+$ = $
Conclusion: Yes, the manager should take advantage of the offer and order Q = 50 units
during this six-month period.
Second six-month period:
Monthly TC (Q = 50):
(
) +(
) = (
).+(
 ) = $+$ = $
Monthly TC (Q = 100):
(
during this six-month period.
Chapter 13 – Inventory Management
8. Given:
d = 27,000 jars per month
H = $0.18 per jar per month
S = $60
Company operates 20 days a month
Current Q = 4,000
Note: Round the EOQ to an integer value, but round any other values to a maximum of two
decimals.
a. What penalty is the company incurring by its present order size?
Step 1:
Determine current monthly cost for Q = 4,000.
 = (
) +(
) = (,
).+(,
, ) = $+$ = $
Step 2:
Determine EOQ, total cost for EOQ, and monthly savings from using the EOQ.
Savings per month from using EOQ = $765 – $763.68 = $1.32.
Chapter 13 – Inventory Management
b. The manager would prefer ordering 10 times each month (every other day) but would have to
justify any change in order size. One possibility is to simplify order processing to reduce the
ordering cost. What ordering cost would enable the manager to justify ordering every other
day?
Using the current Q = 4,000, total monthly cost = $765.
If the manager orders 10 times per month, Q = 27,000 / 10 = 2,700.
Set TC (Q = 2,700) = $765 and solve for S:
This is the order cost that would enable the manager to justify ordering every other day.
13–20
Education.
9. Given:
p = 5,000 hotdogs/day
u = 250 hotdogs/day
Factory operates 300 days per year
D = 250 * 300 = 75,000 hotdogs per year
a. Find the optimal run size:
,812427.812,4
250000,5
000,5
45.0
66)000,75(22
up
p
H
DS
Qp
hotdogs
b. Number of runs per year: