Practice Problems: Inventory Management
Problem 1:
|
ABC Analysis
|
|
Stock Number
|
Annual $ Volume
|
Percent of Annual $ Volume
|
|
J24
|
12,500
|
46.2
|
|
R26
|
9,000
|
33.3
|
|
L02
|
3,200
|
11.8
|
|
M12
|
1,550
|
5.8
|
|
P33
|
620
|
2.3
|
|
T72
|
65
|
0.2
|
|
S67
|
53
|
0.2
|
|
Q47
|
32
|
0.1
|
|
V20
|
30
|
0.1
|
|
|
|
S = 100.0
|
What are the appropriate ABC groups of inventory items?
Problem 2:
A firm has 1,000 "A" items (which it counts every week, i.e., 5 days), 4,000 "B" items (counted every 40 days), and 8,000 "C" items (counted every 100 days). How many items should be counted per day?
Problem 3:
Assume you have a product with the following parameters:
Annual Demand = 360 units
Holding cost per year = $1.00 per unit
Order cost = $100 per order
What is the EOQ for this product?
Problem 4:
Given the data from Problem 3, and assuming a 300-day work year, how many orders should be processed per year? What is the expected time between orders?
Problem 5:
What is the total cost for the inventory policy used in Problem 3?
Problem 6:
Based on the material from Problems 3 - 5, what would cost be if the demand was actually higher than estimated (i.e., 500 units instead of 360 units), but the EOQ established in problem 3 above is used? What will be the actual annual total cost?
Problem 7:
If demand for an item is 3 units per day, and delivery lead-time is 15 days, what should we use for a simple re-order point?
Problem 8:
Assume that our firm produces Type C fire extinguishers. We make 30,000 of these fire extinguishers per year. Each extinguisher requires one handle (assume a 300 day work year for daily usage rate purposes). Assume an annual carrying cost of $1.50 per handle, production setup cost of $150, and a daily production rate of 300. What is the optimal production order quantity?