# Ise 513 Homework2

∂TRC∂Q=ADQ2+rv=0, we can get EOQ=ADrv

2) a. the holding cost h=$0.3/300=$0.001 per working day

b. EMQ=2ADrv(1-DP)=2×48×20000.001×(1-20008000)=16000pounds c. (1) Maximum inventory:

Imax=Q1-DP=12000

(2) Average inventory:

12Imax=6000

(3) Average annual holding cost:

12Imax($0.3 /unit/year)=$1800

(4)Interval between orders:

T=QD=160002000=8days

(5) Reorder point:

DL=2000×5=10000units

d. Assuming that we get replenishment of 8000 pounds of flour on Monday and Tuesday respectively, the bakery will consume the first 8000 pounds from Monday till Thursday, and next 8000 pounds from Friday. However, the flour would be expired after 7 days, in this case on next Tuesday; while we only consume 4000 pounds before next Tuesday. Therefore, the maximum economic lot size under this scenario would be 8000+4000=12000 pounds.

3) Special order quantity: Q*=1000

TRCdon't =2ADh+v0DQ*D=2×20×100×5×0.252+0.03+5×100×1000100=5140 TRCdo =v1Q*+A+h1Q*I(t1)D+12h1Q*D=4750+20+4.75×0.252+0.03×1000×150100+12×10002100×4.75×0.252+0.03=5084 Since TRC(don’t) > TRC(do), it is a way of risk to take the order.

4) a. EOQ=2ADrv=2×5×40000.25×0.04=2000

b. T=EOQD=20004000=0.5 year=6 months

c. TRCEOQ=ADEOQ+vrEOQ2=4000×52000+0.04×0.25×20002=20

While based on 3-month supply rule, Q=1000,

TRCQ=ADQ+vrQ2=4000A1000+0.04×0.25×10002=4A+5

TRCEOQ>TRCQ, 203.75

Therefore, as long as A>3.75, a 6-month supply is better...

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