*** Problem Set Key — Do Not Post or Distribute ***
Chapter 11: Managing Inventory Throughout the Supply Chain
Introduction to Operations & Supply Chain Management (Bozarth & Handfield, 3rd Ed.)
DIRECTIONS To generate the key, put in the space below the same 4-digit number used to
generate the original homework.
Name: *** KEY ***
4-digit number: 1000
Northcutt Bikes purchases two types of wheels for their roadracing bikes:
a regular version and a deluxe version. The table below has demand information for the past year
for each style of wheel, as well as combined figures.
REGULAR DELUXE Combined
Month Wheels Wheels Demand Other important information:
May 292 228 520 2599.175 507.9288 Leadtime 0.5 months
June 322 527 849 2866.567 1173.325
July 102 605 707 908.2062 1344.477 Item costs
Problem 1 Calculate the EOQ for each wheel separately. Show your work in the space below.
Regular wheels:
Estimated annual demand = 2586 = D in EOQ formula
Annual holding cost / unit = $7.0
= H in EOQ formujla
EOQ = 384.41
Deluxe wheels:
Estimated annual demand = 6235 = D in EOQ formula
Annual holding cost / unit = $8.0
= H in EOQ formujla
EOQ = 558.35
Problem 2 Calculate the ROP separately for each wheel. Show your work in the space below.
Since no standard deviation for lead time is given, we must assume that lead time is contant
(ie, no variance). Furthermore, for a service level of 95%, z = 1.65.
Regular wheels ROP: 191.83 units Safety stock = 84.08 units
*** KEY ***
Problem 3 For each wheel, calculate the total yearly holding and ordering cost, as well as total item cost.
(Note: Assume average inventory level = Q/2 + Safety Stock)
What are the combined costs for the two seats?
For regular wheels, EOQ = 384.41
Annual holding cost = $1,933.99
For deluxe wheels, EOQ = 558.35
Annual holding cost = $3,379.97
Annual ordering cost = $2,233.38
Problem 4 Jan is thinking about using the deluxe wheels on all bikes, yet still charge her customers the same price.
Advanced Repeat Problems 1-3, except this time assume that all demand will be met by the deluxe wheels.
Question Considering ordering, holding and item costs, will it be cheaper or more expensive to use deluxe wheels on all bikes?
Show your work.
New D for EOQ is combined demand: 8821
S would still be $200 $200.00
H would be holding cost / unit for deluxe: $8.00
Annual ordering cost = $1,345.44