Activity 4.5 – Module Problems

Management Science Course

Activity 4.5 – Module Problems

4-1       Ross White’s machine shop uses 2,500 brackets during the course of a year, and this usage is relatively constant throughout the year.  These brackets are purchased from a supplier 100 miles away for $19 each, and the lead time is 4 days.  The holding cost per bracket per year is 10% of the unit cost and the ordering cost per order is $25.  There are 250 working days per year.

• What is the EOQ?
  • Given the EOQ, what is the average inventory?
  • What is the annual inventory holding cost?
  • In minimizing cost, how many orders would be made each year?
  • What would be the annual ordering cost?
  • Given the EOQ, what is the total annual inventory cost (including purchase cost)?
  • What is the time between orders?
  • What is the ROP?

4-2       Douglas Boats is a supplier of boating equipment for the states of Oregon and Washington.  It sells 5,000 White Marine WM-4 diesel engines every year.  These engines are shipped to Douglas in a shipping container of 100 cubic feet, and Douglas Boats keeps the warehouse full of these WM-4 motors.  The warehouse can hold 5,000 cubic feet of boating supplies.  Douglas estimates that the ordering cost is $50 per order, and the carrying cost is estimated to be $50 per motor per year.  Douglas Boats is considering the possibility of expanding the warehouse for the WM-4 motors. 

• How much should Douglas Boats expand.
  • How much would it be worth for the company to make the expansion?  Assume demand is constant throughout the year.

4-3       Ralph Janaro simply does not have time to analyze all the items in his company’s inventory.  As a young manager, he has more important things to do.  The following is a table of six items in inventory along with the unit cost and the demand in units. 

Find the total amount spent on each item during the year.  What is the total investment for all these?Find the percentage of the total investment in inventory that is spent on each item.Based on the percentages in part (b), which item(s) would be classified in categories A, B, and C using ABC analysis?Which item(s) should Ralph most carefully control using quantitative techniques?How low would the demand for 33CP have to before it change to a different category?Develop a net materials requirements plan for an order of 800 SL72s.  Assume that currently there are no parts in inventory.Develop a net material requirements plan assuming that there are currently 150 units of Part A, 60 units of Part B, 40 units of Subassembly C, and 100 units of Part F currently in inventory.

You may submit just the answers or you may submit the answers and the QM worksheets you used to arrive at the answer. Choosing the latter will afford instructors the opportunity to review your work and determine if you understand the concept but have made some minor computational error, therefore allowing them to assign some credit based on your understanding. Submitting just the answers does not provide for any partial credit.Activity 4.5 – Module Problems

4-1       Ross White’smachine shop uses 2,500 brackets during the course of a year, and this usage isrelatively constant throughout the year. These brackets are purchased from a supplier 100 miles away for $19 each,and the lead time is 4 days.  The holdingcost per bracket per year is 10% of the unit cost and the ordering cost per orderis $25.  There are 250 working days per year.

a.     What is the EOQ?

b.     Given the EOQ, what is the averageinventory?

c.     What is the annual inventoryholding cost?

d.     In minimizing cost, how manyorders would be made each year?

e.     What would be the annual orderingcost?

f.      Given the EOQ, what is the totalannual inventory cost (including purchase cost)?

g.     What is the time between orders?

h.     What is the ROP?

4-2       DouglasBoats is a supplier of boating equipment for the states of Oregon and Washington.  It sells 5,000 White Marine WM-4 diesel enginesevery year.  These engines are shipped toDouglas in a shipping container of 100 cubic feet, and Douglas Boats keeps the warehousefull of these WM-4 motors.  The warehousecan hold 5,000 cubic feet of boating supplies. Douglas estimates that the ordering cost is $50 per order, and the carryingcost is estimated to be $50 per motor per year. Douglas Boats is considering the possibility of expanding the warehouse forthe WM-4 motors. 

a.     How much should Douglas Boatsexpand.

b.     How much would it be worth forthe company to make the expansion?  Assumedemand is constant throughout the year.

4-3       RalphJanaro simply does not have time to analyze all the items in his company’s inventory.  As a young manager, he has more important thingsto do.  The following is a table of six itemsin inventory along with the unit cost and the demand in units. 

a.     Find the total amount spenton each item during the year.  What isthe total investment for all these?

b.     Find the percentage of thetotal investment in inventory that is spent on each item.

c.     Based on the percentages in part(b), which item(s) would be classified in categories A, B, and C using ABC analysis?

d.     Which item(s) should Ralph mostcarefully control using quantitative techniques?

e.     How low would the demand for33CP have to before it change to a different category?

4-4       The marginal loss on Washington Reds, a brand of applesfrom the state of Washington, is $40 per case. The marginal profit is $15 per case. During the past year, the mean sales of Washington Reds in cases was 41,000cases, and the standard deviation was 4,480. How many cases of Washington Reds should be brought to market?  Assume that sales follow a normal distribution.

4-5       Paula Shoemaker produces a weekly stock marketreport for an exclusive readership.  She normallysells 3,000 reports per week, and 70% of the time her sales range from 2,850 to3,150.  The report costs Paula $25 to produce,but Paula is able to sell reports for $350 each.  Of course, any reports not sold by the end ofthe week have no value.  How many reportsshould Paula produce each week?

4-6       The Webster Manufacturing Company producesa popular type of serving cart.  This product,the SL72, is made from the following parts: 1 unit of Part A, 1 unit of Part B,and 1 unit of Subassembly C.  Each subassemblyC is made up of 2 units of Part D, 4 units of Part E, and 3 units of Part F.  Develop a material structure tree for this.  The lead time for each of the parts in the SL72is one week, except for Part B and Part E, which have a lead time of two weeks. 

a.    Develop a net materialsrequirements plan for an order of 800 SL72s. Assume that currently there are no parts in inventory.

b.    Develop a net materialrequirements plan assuming that there are currently 150 units of Part A, 60 unitsof Part B, 40 units of Subassembly C, and 100 units of Part F currently in inventory.

Youmay submit just the answers or you may submit the answers and the QM worksheetsyou used to arrive at the answer. Choosing the latter will afford instructorsthe opportunity to review your work and determine if you understand the conceptbut have made some minor computational error, therefore allowing them to assignsome credit based on your understanding. Submitting just the answers does notprovide for any partial credit.