1. A small business company is considering updating the current production line. There are two plans. For plan A, the fixed cost will be $35,000 and the variable cost will be $25 per unit after the update. For plan B, the fixed costs will be $45,000 and the variable cost will be $23 per unit after the update. Please answer the following questions:
(a) Suppose the selling price is $35, what is the break-even volume for each plan? Which plan has a lower break-even volume?
(b) Suppose the selling price is $35. Also, the company aims to achieve a profit of $5,000 after the update. What selling volume will be required to achieve the profit for each plan? Which plan has a lower volume?
2. A service garage uses 1600 boxes of cleaning cloths a year. Ordering cost is $30 and holding cost is $0.6 on an annual basis. Please compute the following tasks using EOQ model.
(a) The economic order quantity based on EOQ model?
(b) The total cost of ordering and carrying
(c) Suppose the current order size is 200. What additional annual cost is the company incurring by staying with the order size 200?
3. Demand for walnut fudge ice cream at the Sweet Cream Dairy can be approximated by a normal distribution with a mean of 23 gallons per week and a standard deviation of 2.5 gallons per week. The new manager desires a service level of 90 percent. Lead time is two days, and the dairy is open seven days a week. (Hint: Work in terms of weeks.)
If a fixed-interval model is used, what order size would be needed for the 90 percent service level with an order interval of 12 days and a supply of 10 gallons on hand at the order time?
Extra Credit
A grocery shop that makes candles offers a scented candle, which can be produced at a rate of 36 boxes per day and used 12 boxes per day. Assume that demand is uniform throughout the year and the shop opens for 360 days. Setup cost is $80 for a run, and holding cost is $2 per box on a yearly basis. Please compute the following tasks using EPQ model:
(a) The economic run size
(b) The maximum inventory
(c) The total cost