Part 1 Problem Sets:

Answer ALL three of the following problem sets. SHOW ALL OF YOUR WORK on the problem sets.

1. A store stocks beer mugs and the demand for these beer mugs is 10,200 per year. It costs $120 per order of the mugs and it costs $1.35 per mug per year to keep the mugs in stock. Once an order is placed, it takes seven days to receive the order from the distributor. Determine the following:
   1. Optimal order size
   2. Minimum total annual inventory cost
   3. Reorder point
2. A company makes apple butter to supply local vendors. The manufacturing company can make 330 pounds of apple butter per day and demand from vendors is 190 pounds per day. Each time the manufacturing company makes apple butter, it costs $176 to set up the production process. The annual cost of carrying a pound of apples in a refrigerated storage area is $6.50. Determine the optimal ordering quantity and the minimum total annual inventory cost.
3. While researching the acquisition of a component part, a purchasing manager requested the following information from her accounting department:
   • Annual demand =15,500
   • Cost of placing an order = $180
   • Annual inventory holding cost = 20 percent
   • Unit cost = $75 Please calculate the following:
   1. Optimal order quantity
   2. Average number of orders
   3. Total annual inventory costs