Mgmt/405 Week 4

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Mgmt/405 Week 4
MGMT 405 Operations and Production Management

(Reference chapters 12– William J. Stevenson-2007, ninth edition)
Problems
1. The manager of an automobile repair shop hopes to achieve a better allocation of inventory control efforts by adopting an ABC approach to inventory control. Using the following monthly usage and classify the items in A, B, and C categories according to dollar usage:
Item
Usage
Unit Cost
4021
50
\$ 1400
9402
300
12
4066
40
700
6500
150
20
9280
10
1020
4050
80
140
6850
2000
15
3110
400
20
4400
7000
5

(a) Calculate monthly dollar value in each raw.
(b) Use the concept of ABC classification and array from highest to lowest.
(c) Array the items in decending order.
(d) Briefly explain the abovementioned scenario.
Demand for jelly doughnuts on Saturdays at Don’s Doughnut Shoppe is shown in the following table. If labor, materials, and overhead are estimated to be \$ 3.20 per dozen, doughnuts are sold for \$ 4.80 per dozen, and left over doughnuts at the end of each day are sold the next day at half price,

(a) Determine the shortage and excess costs
(b) Determine the service level
(c) Calculate the stockout risk factor
(d) list the cumulative tables for demand
(e) Compute the optimal number of doughnuts?

Demand (Dozen)
Relative.Freq.
19
0.01
20
0.05
21
0.12
22
0.18
23
0.13
24
0.14
25
0.10
26
0.11
27
0.10
28
0.04
29
0.02
ANS:
(a) Ce = Cost per unit- Salvage value per unit =\$ 3.20-2.40= \$ 0.80 per dozen
Cs = Revenue per unit-Cost per unit =\$ 4.80-\$ 3.20=\$ 1.60 per dozen
(b) Service level = Cs/(Cs+Ce) = 1.60/(1.60+0.80)=0.67 (c) Stockout risk = 1.00 – 0.67 = 0.33 (d)
Demand (Dozen)
Relative Freq.
Cumulative Freq.
19
0.01
0.01
20
0.05
0.06
21
0.12
0.18
22
0.18
0.36
23
0.13
0.49
24
0.14
0.63
25
0.10
0.73
26
0.11
0.84
27
0.10
0.94
28
0.04
0.98
29
0.02
1.00

(e) Since the service level falls between the cumulative probabilities of 0.63 (24) and 0.73 (25), this means that the company should stock 25 dozen doughnuts because 0.67 is closer to

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