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# Joe Henry's machine shop: Inventory problem

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Joe Henry's machine shop uses 2500 brackets per year. Brackets are purchased from a supplier 90 miles away.

Annual demand = 2500
Holding cost per bracket per year = \$1.50
Order cost per order = \$ 18.75
Working days per year = 250

A. What is economic order quanity
B. Given EOQ, what is average inventory. What is average inventory holding cost?
C. Given EOQ, how many orders would be made each year? What would be the annual costs
D. What is total annual cost of managing the inventory?
E. What is the time between order.
F. What is the reorder point.

#### Solution Preview

A.  What is economic order quanity
EOQ=SQRT(2*D*Cs/Ch)
EOQ 250 Brackets

B.  Given EOQ, what is average inventory.  What is average inventory holding cost?
Average inventory=EOQ/2
Average inventory 125 Brackets

Annual holding cost=Average ...

#### Solution Summary

This posting contains solution to following Inventory management problem.

\$2.19

## ABC analysis for inventory control, EOQ

Please see the attached file for full problem description.

TABLE 11.3 DOLLARS OF ADDITIONAL SALES NEEDED TO EQUAL \$1 SAVED THROUGH THE SUPPLY CHAIN
PERCENT OF SALES SPENT IN THE SUPPLY CHAIN
PRESENT NET PROFIT OF FIRM 30% 40% 50% 60% 70% 80% 90%
2 \$2.78 \$3.23 \$3.85 \$4.76 \$6.25 \$9.09 \$16.67
4 \$2.70 \$3.13 \$3.70 \$4.55 \$5.88 \$8.33 \$14.29
6 \$2.63 \$3.03 \$3.57 \$4.35 \$5.56 \$7.69 \$12.50
8 \$2.56 \$2.94 \$3.45 \$4.17 \$5.26 \$7.14 \$11.11
10 \$2.50 \$2.86 \$3.33 \$4.00 \$5.00 \$6.67 \$10.00

Using Table 11.3, determine the sales necessary to equal a dollar of savings oon purchases for a company that has:

a. A net profit of 6% and spends 60% of its revenue on purchases
b. A net profit of 8% and spends 80% of its revenue on purchases.

12.1
George Walker has complied the following table of six items in inventory along with the unit cost and the annual
demand in units

identification code unit cost (\$) annual demand in units
XX1 \$5.84 1,200
B66 \$5.40 1,110
3CPO \$1.12 896
33CP \$74.54 1,104
R2D2 \$2.00 1,100
RMS \$2.08 961
Using ABC analysis, which item(s) should be carefully controlled using a quantitative inventory technique
and which item(s) should not be closely controlled?

12.5
William Beville's computer training school, in Richmond, stsocks workbooks with the following characteristics:

Demand D = 19,500 units/year
Ordering cost S = \$25/order
Holding cost H = \$4/unit/year

a. Calculate the EOQ for the workbooks
b. What are the annual holding costs for the workbooks
c. What are the annual ordering costs

12.13
Joe Henry's machine shop uses 2,500 brackets during the course of a year. These brackets are purchased from a supplier 90 miles away.
the following information is known about the brackets.

annual demand 2,500
holding cost per bracket per year \$1.50
order cost per order \$18.75
working days per year 250

a. Given the above information, what would be the economic order quanity (EOQ)?
b. Gicen the EOQ, what would be the average inventory? What would be the annual inventory hold cost?
c. Given the EOQ, how many orders would be made each year? What would be the annual order cost?
d. Given the EOQ, what is the total annual inventory cost?
e. What is the time between orders?
f. What is the reorder point (ROP)?

12.19
Cesar Rogo Computers,a Mississippi chain of computer hardware and software retail outlets, supplies both
educational and commercial customers with memory and storage devices. It currently faces the
following order decision related to purchase of DC-ROMs:

D = 36,000 Disks
S = \$25
H = \$0.45
Purchase price = \$0.85
Discount price = \$0.82
Quantity needed to qualify for the discount = 6,000 disks

Should the discount be taken?

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