# Inventory Problems

**Topics:**Inventory, Reorder point, Economic order quantity

**Pages:**7 (2565 words)

**Published:**September 29, 2012

Develop an ABC classification for these 10 items. 2. A particular raw material is available to a company at three different prices, depending on the size of the order:

The cost to place an order is $40. Annual demand is 3,000 units. Holding (or carrying) cost is 25 percent of the material price. What is the economic order quantity to buy each time? 3. Sally’s Silk Screening produces specialty T-shirts that are primarily sold at special events. She is trying to decide how many to produce for an upcoming event. During the event, Sally can sell T-shirts for $20 apiece. However, when the event ends, any unsold T-shirts are sold for $4 apiece. It costs Sally $8 to make a specialty T-shirt. Sally’s estimate of demand is the Following:

a. What is the service rate (or optimal fractile)? b. How many T-shirts should she produce for the upcoming event? 4. Given the following information, formulate an inventory management system. The item is Demanded 50 weeks a year.

a. State the order quantity and reorder point. b. Determine the annual holding and order costs. c. If a price break of $50 per order was offered for purchase quantities of over 2,000, would you take advantage of it? How much would you save annually? 5. Jill’s Job Shop buys two parts (Tegdiws and Widgets) for use in its production system from two different suppliers. The parts are needed throughout the entire 52-week year. Tegdiws are used at a relatively constant rate and are ordered whenever the remaining quantity drops to the reorder level. Widgets are ordered from a supplier who stops by every three weeks. Data for both products are as follows:

a. What is the inventory control system for Tegdiws? That is, what is the reorder quantity and what is the reorder point? b. What is the inventory control system for Widgets? 6. Retailers Warehouse (RW) is an independent supplier of household items to department stores. RW attempts to stock enough items for a 98 percent service probability. A stainless steel knife set is one item it stocks. Demand (2,400 sets per year) is relatively stable over the entire year. Whenever new stock is ordered, a buyer must assure that numbers are correct for stock on hand and then phone in a new order. The total cost involved to place an order is about $5. RW figures that holding inventory in stock and paying for interest on borrowed capital, insurance, and so on, add up to about $4 holding cost per unit per year. Analysis of the past data shows that the standard deviation of demand from retailers is about four units per day for a 365-day year. Lead time to get the order is seven days. a. What is the economic order quantity? b. What is the reorder point?

7. Daily demand for a product is 60 units with a standard deviation of 10 units. The review period is 10 days, and lead time is 2 days. At the time of review there are 100 units in stock. If 98 percent service probability is desired, how many units should be ordered? 8. Sarah’s Muffl er Shop has one standard muffl er that fi ts a large variety of cars. Sarah wishes to establish a reorder point system to manage inventory of this standard muffl er. Use the following information to determine the best order size and the reorder point:

9. It is your responsibility, as the new head of the automotive section of Nichols Department Store, to ensure that reorder quantities for the various items have been correctly established. You decide to test one item and choose Michelin tires, XW size 185 × 14 BSW. A perpetual inventory system has been used, so you examine this as well as other records and come up with the following data:

Because customers generally do not wait for tires but go...

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