SCM 463
Waters Ch. 4 Supplementary Problems
1. Your company has the following figures:
Revenue
$10,000,000
Cost of Goods Sold
5,000,000
Inventory on hand
2,000,000
Purchasing Dept. Budget
Orders processed
Cost of insurance
Borrowing rate
Shrinkage
Obsolescence
300,000
2,000
3%
15%
2%
12%
What are your current turns, cost of ordering, and cost of holding inventory
2. Reordering cost = $200, Unit cost = $50, Holding cost = 20% (0.2 $/$/yr) , Demand = 3,000 per year.
Find the EOQ.
3. Reordering cost = $60, Holding cost = 30% 0.3 $/$/yr, Demand = 500 / year. Find the EOQ.
4. In problem 2, your choices are to order 400 or 500 units at a time. How much of a change from the
optimal order does each represent, and how much of a change in total costs?
5. In problem 3, your choices are to order 100 or 200 units at a time. How much of a change from the
optimal order does each represent, and how much of a change in total costs?
6. The reordering cost is $300, Unit cost = $12, Holding cost = 25%, Demand = 4,000. Find the EOQ.
You have to choose between ordering 500 or 1700 units at a time. Which do you choose?
7. You order 100 units at a time, and demand is 5200 units per year, (you are only open 5 days a week).
What is your reorder point if the lead time is 2 days, 4 days, 6, days, 10 days?
8. Your cost of reordering is $400, holding cost is 20%, demand is 44,000 / year, and the unit cost is $40.
Your supplier offers the following discount schedule:
order >=
0
3,000
6,000
10,000
price
40
38
35
32
What is the optimal order quantity?
9. You are ordering stereo systems that are made by a supplier in the Far East. Each container shipped
costs $1500, and holds 1,000 stereo units. Holding costs are 20% of the unit cost of $250. Demand is
20,000. How many stereos should you order at a time?
10.The product you order from the corporate DC cost $5.00, and the reorder cost is $200. Demand is
20,000 units per year. Holding cost is 10%. What is the EOQ? HQ decides that you have not been
paying the full cost of transportation, and decides to add an additional cost of $0.50 per unit for
shipping. Now what is your EOQ?
11.Demand for your computers is 10,000 / year. They cost you $1,500 to make, and you sell them for
$1,700. The holding cost is 50%, due to high obsolescence costs. Shipments cost $10,000, because
the computers are made in SE Asia and you bring them into the U.S. via air-freight. Is this a profitable
product for you to carry?
12.Your office superstore currently sells 10,000 of a certain toner cartridge per year. The current price is
$60. Your supplier is offering a sale price of $50. Ordering cost is $68. Holding is 23% of value.
How many should you buy at the special price? Stepping back from the mathematically optimal
solution, does this seem like a good business decision?