EXERCISES Inventory Control

EOQ WITHOUT SHORTAGES

A company currently supplies itself with a certain product by requesting a sufficient amount.
to meet the demand for one month. The annual demand for the item is 1500 units. It
it is estimated that every time an order is placed, a cost of $20 is incurred. the storage cost
The unit inventory per month is $2 and scarcity is not allowed.
a. Determine the optimal order quantity and the time between orders
b. Determine the difference in annual inventory costs between the optimal policy and the policy
Currently, requesting a supply for one month 12 times a year.

Solution:
D = 1500 units/year
$20
Cmi = $2 per unit/month x 12 months = $24 per unit/year

a)

Current Policy: it runs out every month or in other words, 1/12 of a year

Optimal policy:
Q*= 50

Difference

A hardware store has to supply its customers with 30 bags of cement daily, this being
a known demand. If the hardware store fails to deliver the product, it definitely loses the
business, to prevent this from happening it is assumed that there will be no shortage. The storage cost per
The time unit is $0.35 per unit per month and the cost to place the order is $55.
What is the optimal amount to order?
b) The exhaustion period (assume 1 month = 30 days, 1 year = 360 days)
Solution:
D = 30 bags / day = 900 bags / month
Cmi= 0.35 units / month
$55

a)

b)

FULL COURT PRESS, buys glossy paper in rolls of 1500 pounds to print books of
Text. The annual demand is 1920 rolls. The cost per roll is $1000 and the annual cost of
Inventory management is 15% of the cost. Each order costs $250.
a) How many rolls would it be advisable for me to order at once FULL COURT PRESS?
b) What would be the time between orders?

Solution:
D = 1920 rolls
$1000
Cmi = 15% Cu
$250

a)

b)

A company supplies itself with a product that is consumed at a rate of 50 units per day. To the
the company incurs a cost of $25 every time an order is placed and a unit inventory is maintained in
Existence for one week will cost $0.70. Determine the optimal number of orders that must be made.
make the company every year, the amount per order and the cycle time. Suppose that the
The company has a current policy of not allowing shortages in demand and operates 240 days a year.

Solution:
Cmi = $0.70/week x 34 weeks/year = $24/year
$ 25
D = 50 units / Day x 240 days = 12000 units

a)
b)

A warehouse sells 10,000 fans per year. Each time an order is placed, an expense is incurred.
cost of $5. The warehouse pays $100 for each fan, and the cost of holding inventory is $1.
for a year, the annual opportunity cost is estimated at $20. Determine the quantity
optimal order and total cost.
Data:
$5
D= 10,000 fans/year
$20/year
Cu: $100 /fan

a. Optimal order quantity

The quantity the warehouse should order is 71 fans.

b. Total cost

EOQ WITH SHORTAGES

A Mercedes Benz agent must pay 20,000 dollars for each car they buy, the cost
The annual storage is 25% of the value of the car, the agent sells 500 cars a year.
The cost for shortages will be 20,000 dollars. Each time the agent places an order, the cost is 10.
000 dollars determine:
a. The quantity that must be ordered for each order Q
b. The maximum inventory level.
c. the number of orders per year
d. The minimum annual cost.

Solution

2) A company sells an item that has a demand of 18,000 units per year, its cost of
Storage cost per unit is $1.20 per year and the cost of placing an order is $400.00.
The unit cost of the item is $1.00. The cost per missing unit is $5.00 per year.
Determine:
a) The optimal order quantity
b) The total cost per year
c) The number of orders per year
d) The time between orders

Data
$1.00
$400.00
$1.20
$5.00

a) The optimal quantity to order is calculated as follows.

=3465 units

b) The total cost will be determined by:

=747 units
c) the number of orders per year is

4.66

d) The time between orders is

0.215

3. The demand for an item is 1,000 units per month, a deficit is allowed. If the unit cost is
At $1.50, the cost of making a purchase is $600, and the holding cost of one unit is $2 per
year and the cost of deficit is $10 per unit per year, determine:
a. The optimal quantity that should be purchased
b. The optimal number of depleted units (deficit)

Solution:
D = 1000 units/month = 12,000 units/year
2 $/unit
600 $/unit
Cu= $1.50
10 $/unit

Solution
a

4) A Mercedes Benz agent must pay 20,000 dollars for each car they buy, the cost
annual storage is 25% of the value of the car, the agent sells 500 cars a year.
The cost for shortages will be 20,000 dollars. Each time the agent places an order, his cost is 10.
000 dollars determine:
The amount that must be ordered.
b) The maximum inventory level.
c) the number of orders per year.

Data:
Cp. = 10000 dollars / order
500 cars/year
Cmi = (0.25) (20000) = 5000 dollars / car / year
Cf = 20000 dollars/unit/year

a. The quantity that must be ordered.

b. The maximum inventory level.

c. the number of orders per year.

LEP WITHOUT MISSING ITEMS

A company has a varied line of products. One of them is latex paint.

the company can produce paint at an annual rate of 8000 gallons. The unit cost of production
a gallon of paint is $0.31 and the annual cost of maintaining the inventory is 40%. Before each
Production run involves cleaning and verification of operations at a cost of $30.
Determine the economic quantity to produce and the total cost of the average annual inventory.
Solution.
Cop = $30 per preparation
40% annual
Cu= $0.31 per gallon
Cmi x Cu = 0.40 x $0.31 = $0.124 per gallon per year
D = 4000 gallons per year
R = 8000 gallons per year

a)
b) Total annual cost

One of the items produced by Mattel is a Barbie doll. It has a constant demand.
40000 pieces per year. The soft plastic body is the same for all the dolls, but the clothing
It is periodically changed to adjust to different tastes. The company can produce 200
articles per day, but only works 200 days a year. The production runs for different
products require changes for the cutters and sewing machines, and some adjustments in
the assembly area. Preparation is estimated at $350 per production run. A doll
that sells for $15,000 when it leaves the production line. The complete carrying costs
For the production articles, it is set at 20% of the production cost and is based on the
average inventory level. Based on these figures for cost, calculate the economic quantity.
of production and the maximum inventory level.

Solution
C op = $350 per preparation
20% annual
Cu= $15000 per doll
Cmi x Cu = 0.20 x $15000 = $3000 dolls per year
D = 40,000 dolls per year
R = 200 x 200 = 400,000 dolls per year

A large producer of nerve medicine produces its supplies in batches, the cost of
Preparation for each shipment is $750. From the production, 48 gallons are obtained daily from the
The product costs $0.05 each to keep in stock. The constant demand is 600.
gallons per month. Assume 12 months, 300 days a year, and 25 days a month. Find the optimal amount
of production, the optimal cycle time, the maximum inventory on hand, and the duration in days
of each month of production

Solution:
$750
$0.05 /month
R = 48 gal/day x 25 days = 1,200 gallons/month
D = 600 gal /month

A contractor must supply 10,000 bearings daily to a car manufacturer. The

it finds that when the production batch starts it can produce 25,000 bearings per day. The
the cost of keeping a bearing in inventory per year is $2 and the cost of preparing each batch of
production is $1,800.
a) What size of the batch should be produced?
b) How frequently should the batches be produced to meet the demand (in days) if they
Do they consider 250 days a year?
c) How long will their production cycle last?

Solution
$1800
$2/year
R = 25000 units/day
D = 10000 cushions

5. The demand of a company for an item is 18,000 units per year. The cost of
organizing or preparing the production order is $500 and the storage cost of one
The unit price per year is $1.8.
a) What should be the optimal lot size to manufacture and the total cost
(storage and preparation); if the daily production rate is 100 units and the demand
of 72 units per day.
b) Calculate the maximum inventory level.
c) Estimate the production time.
Solution
D = 72 units / day
$500
$1.8
R = 100 units/day

a)

b)

c)

LEP WITH MISSING PARTS.

Súper Sauce produces a salad dressing. The demand for this dressing is around 400.
pounds per month and Super Sauce can produce at a rate of 2000 pounds per month. To start the
production, must check and clean the machines thoroughly and each preparation
it costs $120. The cost of producing this dressing is $3 per pound and the cost of storing it is
inventory is estimated at 20% annually. If the demand for this dressing exceeds what is available in
inventory the order is fulfilled later. Management thinks that the shortages occur in two
types of cost, the loss of goodwill and a penalty for the shortfall. The loss of goodwill
the will is estimated at $0.1 per pound and the penalty is estimated at $1.2 per pound that is missing per month.
Analyze this problem.
Solution: The parameters of the problem are
Cop = $120 per preparation
20% annual
c = $3 per pound
h = 0.2 x $3 = $0.6 per pound per year
p = $0.1 per pound
$1.2 per pound per month
D = 400/month = 4800/year
R = 2000/month = 24000/year

the economic amount to be produced is

The maximum level of optimal shortage is:

The economic lot size is 1605 pounds, the maximum level of back orders is 26 pounds and the
Production takes 4800/24000 0 20% of the time. The total inventory cost is:

2. Every year the Samltown Optometry Clinic sells 10,000 frames for lenses the clinic requests the
frames to a regional supplier, who charges 14 dollars per frame. Each order incurs a
a cost of 50 dollars. The optical store believes that the demand for frames may accumulate and that the
The cost of lacking a framework for a year is 15 dollars due to lost business.
futures. The annual cost of maintaining an inventory is 30 cents per dollar of the value of
inventario. ¿Cuál es la cantidad óptima de pedido? ¿Cuál es la escasez máxima que se presentará?
What is the maximum inventory level that will be presented?

Solution:
Inventory price = $15 per frame
$50 per order
$15 unit/year
$0.30 per dollar of inventory value

the cost 1 corresponds

C1=0.30 * inventory value = 0.30(15) = $4.50
$4.50
10,000 frames per year.

For Q* (optimal order quantity)

What is the maximum inventory level?

What is the maximum scarcity that will arise?

Maximum deficit = Q* - S* = 573.48–413.45 = 124.03 frames

Or well
3. The demand for an item from a certain company is 18,000 units per year and the
The company can produce that item at a rate of 3,000 units per month, The cost of organizing
a production batch costs $500.00 and the storage cost of one unit is $0.15 per
month. Determine the optimal quantity to be manufactured and the total cost per year
assuming that the cost of one unit is $2.00. The cost per exhausted unit is $20.00 per
year.

Data
D = 18,000 Units per year
R = 3,000 per month
$2.00
$500.00
C3 = $0.15 per month
C4 = $20.00 per year
The optimal amount will be defined by:

To calculate the annual cost, the number of units sold out must first be calculated.

The total cost will be defined by

Total Cost = $39,855 per planning period.

4. In a toy manufacturing company, every time a batch is produced, a cost is incurred.

Preparation cost $30, the inventory maintenance cost of a toy is $0.5 per month,
demand is 15,000 toys annually and the annual rate is 20,000 toys. Each toy that is lacking
When needed, it costs $20. Indicate what the optimal quantity to order is.
5. the demand for an item in a company is 36,000 units per year and the company can
produce this article at a rate of 6000 units per month. The cost of organizing a run of
production is $1000 and the storage cost of one unit per month is 30 cents, the
The cost of one unit is $4 and the cost of an out-of-stock unit is $40 per year. It is requested to calculate.
the optimal order quantity, the quantity depleted, and the maximum inventory

Data:
Demanda= 36000
Cost of a production run = $1000
$0.30
Cost of one unit = $4
Cost of an out of stock unit = $40
Production rate = 6000

The optimal amount

b out of stock

maximum inventory

REFERENCE