1. Demand for a popular athletic shoe is nearly constant at 800 pairs per week for a regionaldivision of a national retailer. The cost per pair is $54. It costs $72 to place an order, andannual holding costs are charged at 22% of the cost per unit. The lead time is two weeks.
a. What is the EOQ?
b. What is the reorder point?
c. What is the cycle time?
d. What is the total annual cost?
2. The Super Discount store (open 24 hours a day, every day) sells 8-packs of paper towels, atthe rate of approximately 420 packs per week. Because the towels are so bulky, the annualcost to carry them in inventory is estimated at $.50. The cost to place an order for more is$20 and it takes four days for an order to arrive.
a. Find the optimal order quantity.
b. What is the reorder point?
c. How often should an order be placed?
3. Kellam Images prints snack food bags on long rolls of plastic film. The plant operates 250days a year. The daily production rate is 6000 bags, and the daily demand is 3500 bags. Thecost to set up the design for printing is $300. The holding cost is estimated at 2 cents per bag.
a. What is the recommended production lot size?
b. If there is a five-day lead time to set up the line, what is the recommendedreorder point?
4. Daily demand for packages of five videotapes at a warehouse store is found to be normallydistributed with mean 50 and standard deviation 5. When the store orders more tapes, theordering cost is $42 and the orders take 4 days to arrive. Each pack of tapes costs $7.20 andthere is a 24% annual holding cost for inventory. Assume the store is open 360 days a year.
a. What is the EOQ?
b. If the store wants the probability of stocking out to be no more than 5%, anddemand each day is independent of the day before, what reorder point shouldbe set?
c. How much of your reorder point in part b) is safety stock?
5. Bank Drugs sells Jami Michelle lipstick. The Jami Michelle Company offers a 6% discount onorders of at least 500 tubes, a 10% discount on orders of at least 1,000 tubes, a 12% discounton orders of at least 1,800 tubes and a 15% discount on orders at least 2,500 tubes.Bank sells an average of 40 tubes of Jami Michelle lipstick weekly. The normal price paid byBank drugs is $1 per tube. If it costs Bank $30 to place an order, and Bank's annual holdingcost rate is 27%, determine the optimal order policy for Bank Drugs.