Annual demand: 630
Annual holding cost, per unit: $2.00
Cost per order: $9.00
Discount order quantity: 101
Discounted total cost of units: $2,835.00
Discount annual holding cost: $101.00
a.)
Economic order quantity: 75
Total cost of units: $3,780.00
b.)
c.)
Time units: weeks
Demand units: bags
Average order lead time: 2 weeks
Ollah should order 101 bags at a time to take advantage of the lower cost per unit. Ordering
101 units per order will result in a total annual savings of $938.46. The optimal order
quantity is higher than EOQ because of the amount of the discount.
Item: t-shirts
Value of item if demanded: $20.00
Item cost: $6.50
SIDE NOTE: We can also quickly calculate the target stocking point using
the NORMINV function for Excel. It works like this:
a.)
Item: books
Value of item if demanded: $50.00
Item cost: $12.00
b.)
Item: books
Value of item if demanded: $50.00
Item cost: $22.00
Disposal cost: $0.00
24
4%
25
0%
22
10%
90%
23
6%
96%
21
26%
80%
19
17%
36%
18
15%
19%
16
0%
0%
17
4%
4%
STUDENTS WHO
BOUGHT A BOOK
PERCENTAGE OF
OBSERVATIONS
CUMULATIVE
PERCENTAGE
0%
54%
90%
96%
25
6%
4%
22
23
24
20
10%
18%
4%
19%
36%
19
STUDENTS WHO
BOUGHT A BOOK
PERCENTAGE OF
OBSERVATIONS
0%
4%
15%
17%
CUMULATIVE
PERCENTAGE
16
0%
17
18
a.)
Economic order quantity: 16
b.)
c.)
Current order quantity: 120
Current annual holding cost: $2,880.00
Current annual ordering cost: $52.00
d.)
Time units: weeks
Demand units: printers
Average order lead time: 3 weeks
Standard deviation of lead time: 0 weeks
e.)
Order quantity: 120
Safety Stock: 49
Annual holding cost, per unit: $48.00
f.)
Order quantity: 120
Safety Stock: 28 (we can verify this by plugging 1 into the “average order lead time” above
a.)
Economic order quantity: 55
EOQ annual holding cost: $7,040.00
b.)
Time units: weeks
Demand units: monitors
Average order lead time: 2 weeks
Standard deviation of lead time: 0.3 weeks
c.)
Order quantity: 64
Annual holding cost: $8,192.00
d.)
e.)
Order quantity: 64
Safety Stock: 157
f.)
Time units: weeks
Demand units: monitors
Average order lead time: 1 weeks
As the annual holding cost per monitor increases, the EOQ will decrease. This is because the
ratio of holding cost to order cost will increase.
z value (for desired service level): 1.65
Reorder point: 334 monitors
Safety stock: 27 monitors
a.)
SLOW SEASON
Annual demand: 7800
Annual holding cost, per unit: $12.00
BUSY SEASON
Annual demand: 15600
b.)
Order quantity: 150
Annual holding cost: $900.00
Time units: weeks
Demand units: cases
Average order lead time: 0.5 weeks
Annual demand: 2000
Annual holding cost, per unit: $2.00
Cost per order: $15.00
Discount order quantity: 501
Discounted total cost of units: $13,000.00
Economic order quantity: 174
Total cost of units: $14,000.00
Calculating Savings under EOQ
Annual demand: 4000
Annual holding cost, per unit: $30.00
Current annual ordering cost: $240.00
Total cost: $7,740.00
Calculating Savings Due to Pooling Safety Stock
Annual holding cost per unit: $5.00
Location 1 50 4.5 413.98 400 13.98
Safety stock
Average daily
demand
Variance of
daily demand
Reorder point
Average
demand during
lead time
Safety stock
Average daily
demand
Variance of
daily demand
Reorder point
Average
demand during
lead time
Question 1.)
FB378 GS131
Annual demand: 1916 Annual demand: 2480
Annual holding cost, per unit: $1.00 Annual holding cost, per unit: $2.15
Average order lead time: 3 Average order lead time: 6
Standard deviation of lead time: 0 Standard deviation of lead time: 0
Question 2.)
Current order quantity: 120 Current order quantity: 850
Current annual holding cost: $60.00 Current annual holding cost: $913.75
Question 3.)
There is no single right answer to this question. They should be included as a cost of poor
service quality, as a lost revenue, and as service quality improves so the demand will