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CHAPTER 12 IN V E N T O R Y MA N A G E M E N T 181
12.35
Annual setup cost = 20($120) = $2,400
(d) Maximum inventory level = Q(1 – d/p)
= 400(1 – 32/200) = 336
Average inventory = Maximum/2 = 336/2 = 168
(e) Total holding cost + Total setup cost = (168)50 + 20(120)
Holding Cost
Ordering Cost
$2,000
$1,500
600
500
750
800
280
30,000
182 CHAPTER 12 INV E N T O R Y MA N A G E M E N T
Copyright ©2014 Pearson Education, Inc.
184 CHAPTER 12 INV E N T O R Y MA N A G E M E N T
1
CASE STUDIES
ZHOU BICYCLE COMPANY
1. Inventory plan for Zhou Bicycle Company. The forecast
demand is summarized in the following table:
Jan
8
July
39
students then can calculate the lost profit due to stockout and
add it to the total cost.
3. A plot of the nature of the demand clearly shows that it is not
a level demand over the planning horizon. An EOQ for the entire
year, therefore, may not be appropriate. The students should try to
segment the planning horizon in a way so that the demand is more
evenly distributed and come up with an inventory plan for each
186 CHAPTER 12 INV E N T O R Y MA N A G E M E N T
200,000 programs this year. The programs will be different next
year when he will also have a new forecast demand, depending on
how the team does this year. Maddux’s real solution will be more
like this one: Maddux should order programs from First Printing.
Actual ordering cost = but in fact 4 orders must be placed;
3 at 60,000 and 1 at 20,000. Four
setups cost $1,200 = (4 $300)
Theoretical holding cost = 50% of $1.44 (60,000/2) = $21,600
Actual holding cost = Last order is for only 20,000 units, so
his average order (and maximum inventory) is only 50,000
2. The insert ordering includes another set of issues. Although
some students might use a standard quantity discount model and
on a per game basis. Inserts for each game are unique, as statistics
and lineup for each team changes as the season progresses. If
60,000 people are going to attend the game, then 40,000 inserts
are required (2 of 3 people, or 2/3 of 60,000). Therefore, the quan-
tity discount issue, although it should be evaluated, takes second
Holding cost = 5% of $0.765 (40,000/2) = $1,530 (assume
average inventory is 20,000).
= +
+
= + + =
Per-game insert cost ($0.765 40,000) ($300)
(5% of $0.765 40,000 2)
$30,600 $300 $1,530 $32,430
Per-season insert cost = $32,430 5 games = $162,150
◼ Ask if he can have the same discount schedule if he places
a blanket order for all 200,000, but asks for releases on a
*These case studies appear on our Web sites, www.pearsonhighered.com/
heizer and at www.myomlab.com.
Results
CHAPTER 12 IN V E N T O R Y MA N A G E M E N T 181
12.35
Annual setup cost = 20($120) = $2,400
(d) Maximum inventory level = Q(1 – d/p)
= 400(1 – 32/200) = 336
Average inventory = Maximum/2 = 336/2 = 168
(e) Total holding cost + Total setup cost = (168)50 + 20(120)
Holding Cost
Ordering Cost
$2,000
$1,500
600
500
750
800
280
30,000
182 CHAPTER 12 INV E N T O R Y MA N A G E M E N T
Copyright ©2014 Pearson Education, Inc.
184 CHAPTER 12 INV E N T O R Y MA N A G E M E N T
1
CASE STUDIES
ZHOU BICYCLE COMPANY
1. Inventory plan for Zhou Bicycle Company. The forecast
demand is summarized in the following table:
Jan
8
July
39
students then can calculate the lost profit due to stockout and
add it to the total cost.
3. A plot of the nature of the demand clearly shows that it is not
a level demand over the planning horizon. An EOQ for the entire
year, therefore, may not be appropriate. The students should try to
segment the planning horizon in a way so that the demand is more
evenly distributed and come up with an inventory plan for each
186 CHAPTER 12 INV E N T O R Y MA N A G E M E N T
200,000 programs this year. The programs will be different next
year when he will also have a new forecast demand, depending on
how the team does this year. Maddux’s real solution will be more
like this one: Maddux should order programs from First Printing.
Actual ordering cost = but in fact 4 orders must be placed;
3 at 60,000 and 1 at 20,000. Four
setups cost $1,200 = (4 $300)
Theoretical holding cost = 50% of $1.44 (60,000/2) = $21,600
Actual holding cost = Last order is for only 20,000 units, so
his average order (and maximum inventory) is only 50,000
2. The insert ordering includes another set of issues. Although
some students might use a standard quantity discount model and
on a per game basis. Inserts for each game are unique, as statistics
and lineup for each team changes as the season progresses. If
60,000 people are going to attend the game, then 40,000 inserts
are required (2 of 3 people, or 2/3 of 60,000). Therefore, the quan-
tity discount issue, although it should be evaluated, takes second
Holding cost = 5% of $0.765 (40,000/2) = $1,530 (assume
average inventory is 20,000).
= +
+
= + + =
Per-game insert cost ($0.765 40,000) ($300)
(5% of $0.765 40,000 2)
$30,600 $300 $1,530 $32,430
Per-season insert cost = $32,430 5 games = $162,150
◼ Ask if he can have the same discount schedule if he places
a blanket order for all 200,000, but asks for releases on a
*These case studies appear on our Web sites, www.pearsonhighered.com/
heizer and at www.myomlab.com.
Results
