Name:
ISOM 351: OPERATIONS MANAGEMENT
Chapter 10 Problem Set
Note: You must show your work to receive full credit.
Problem 1
Bolt, Inc., manufactures a motorcycle part in lots of 250 units. The raw materials cost for the part
is $150, and the value added in manufacturing 1 unit from its components is $300, for a total cost
per completed unit of $450. The lead time to make the part is 3 weeks, and the annual demand is
4,000 units. Assume 50 working weeks per year.
a. How many units of the part are held, on average, as cycle inventory? What is its value?
Cycle Inventory: 125 units, valued at $56,250.
b. How many units of the part are held, on average, as pipeline inventory? What is its value?
Pipeline Inventory: 240 units, valued at $108,000.
Value of Pipeline Inventory: 240 x 450 = 108,000
Average pipeline inventory: (4000/50) x 3 = 240 units
Average cycle inventory: 250 / 2 = 125 units
Value of average cycle inventory: 125 x $450 = $56,250
This study source was downloaded by 686471 from [Link] on 11-09-2025 [Link] GMT -06:00
Page 1 of 5
[Link]
Problem 2
Ruby-Star Incorporated is considering two different vendors for one of its top-selling products,
which has an average weekly demand of 50 units and is valued at $75 per unit. Inbound
shipments from Vendor 1 will average 350 units with an average lead time (including ordering
delays and transit time) of 2 weeks. Inbound shipments from Vendor 2 will average 500 units
with an average lead time of 1 week. Ruby-Star operates 52 weeks per year; it carries a 2-week
supply of inventory as safety stock and no anticipatory inventory.
a. What would be the average aggregate inventory value of this product if Ruby-Star used
Vendor 1 exclusively?
Average aggregate inventory value = $28,125
b. What would be the average aggregate inventory value of this product if Ruby-Star used
Vendor 2 exclusively?
Average aggregate inventory value = $30,000
Vendor 1:
Cycle Inventory: Formula: 350 / 2 = 175
Pipeline Inventory: Formula: 50 x 2 = 100
Aggregate Inventory: 175 + 100 + 100 = 375
Value of Aggregate Inventory: 375 x 75 = 28,125
Vendor 2:
Cycle Inventory: Formula: 500 / 2 = 250
Pipeline Inventory: Formula: 50 x 1 = 50
Aggregate Inventory: 250 + 50 + 100 = 400
Value of Aggregate Inventory: 400 x 75 = 30,000
This study source was downloaded by 686471 from [Link] on 11-09-2025 [Link] GMT -06:00
Page 2 of 5
[Link]
Problem 3
Leaky Pipe, a local retailer of plumbing supplies, faces demand for one of its SKUs at a constant
rate of 30,000 units per year. It costs Leaky Pipe $10 to process an order to replenish stock and
$1 per unit per year to carry the item in stock. Stock is received 4 working days after an order is
placed. No back-ordering is allowed. Assume 300 working days per year.
a. What is Leaky Pipe’s optimal order quantity?
Optimal Order Quantity (EOQ): 775 units
b. What is the optimal number of orders per year?
Optimal Number of Orders per Year: 39 orders
c. What is the optimal interval (in working days) between orders?
Optimal Order Interval: Approximately 8 working days
d. What is demand during the lead time?
Demand During Lead Time: 400 units
e. What is the reorder point?
Reorder Point: 400 units
f. What is the inventory position immediately after an order has been placed?
Inventory Position After Order: 1,175 units
Optimal Order Quantity (EOQ):
Sqrt(2 x 30,000 x 10) / 1) = sqrt(600,000) = 774.6
Optimal Number of Orders per Year:
30,000 / 775 = 38.7
Optimal Order Interval (in working days):
300 / 39 = 7.69
Demand During Lead Time:
(30,000 / 300) x 4 = 400
Reorder Point:
400
Inventory Position Immediately After Order Placement:
775 + 400 = 1,175
This study source was downloaded by 686471 from [Link] on 11-09-2025 [Link] GMT -06:00
Page 3 of 5
[Link]
Problem 4
At The Library, a large retailer of popular books, demand is constant at 32,000 books per year.
The cost of placing an order to replenish stock is $10, and the annual cost of holding is $4 per
book. Stock is received 5 working days after an order has been placed. No backordering is
allowed. Assume 300 working days a year.
a. What is The Library’s optimal order quantity?
Optimal Order Quantity (EOQ): 400 books
b. What is the optimal number of orders per year?
Optimal Number of Orders per Year: 80 orders
c. What is the optimal interval (in working days) between orders?
Optimal Order Interval: Approximately 4 working days
d. What is demand during the lead time?
Demand During Lead Time: 533 books
e. What is the reorder point?
Reorder Point: 533 books
f. What is the inventory position immediately after an order has been placed?
Inventory Position After Order: 933 books
Optimal Order Quantity (EOQ):
sqrt(2 x 32,000 x 10)/4) = sqrt (160,000)= 400
Optimal Number of Orders per Year:
32,000 / 400 = 80
Optimal Order Interval (in working days):
300 / 80 = 3.75
Demand During Lead Time:
(32,000 / 300) x 5 = 533.33
Reorder Point:
533
Inventory Position Immediately After Order Placement:
400 + 533 = 933
This study source was downloaded by 686471 from [Link] on 11-09-2025 [Link] GMT -06:00
Page 4 of 5
[Link]
Problem 5
SportsSquare Markets, Inc., is considering the use of ABC analysis to focus on the most critical
SKUs in its inventory. Currently, there are approximately 20,000 different SKUs with a total
dollar usage of $10,000,000 per year.
a. What would you expect to be the number of SKUs and the total annual dollar usage for A
items, B items, and C items at SportsSquare Markets, Inc.?
A Items:
Number of SKUs: 20,000 × 0.20 = 4,000
Annual dollar usage: 10,000,000 × 0.80 = 8,000,000
B Items:
Number of SKUs: 20,000 × 0.30 = 6,000
Annual dollar usage: 10,000,000 × 0.15 = 1,500,000
C Items:
Number of SKUs: 20,000 × 0.50 = 10,000
Annual dollar usage: 10,000,000 × 0.05 = 500,000
This study source was downloaded by 686471 from [Link] on 11-09-2025 [Link] GMT -06:00
Page 5 of 5
[Link]
Powered by TCPDF ([Link])