# Problems on 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

Lead time 2 days

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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#### Solution Preview

Please see the attached file for complete answers.

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 $4.35 (See table above)

b. A net profit of 8% and spends 80% of its revenue on purchases. $7.14 (See table above)

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?

identification code unit cost ($) annual demand in units annual demand in $ % of Total $ Volume Rank

XX1 $5.84 1,200 $7,008.00 6.97% 2

B66 $5.40 1,110 $5,994.00 5.96% 3

3CPO $1.12 896 $1,003.52 1.00% 6

33CP $74.54 1,104 ...

#### Solution Summary

Four problems on Supply Chain, ABC analysis for inventory control, EOQ (Economic Order Quantity).

I need to solve these inventory analyses with calculations

1-1. Ray's Satellite Emporium wishes to determine the best order size for its best-selling satellite dish (model TS111). Ray has estimated the annual demand for this model at 1,000 units. His cost to carry one unit is $100 per year per unit, and he has estimated that each order costs $25 to place. Using the EOQ model, how many should Ray order each time?

1-2. Assuming that the cost of logistics for an order is included in the order set-up cost (S), explain the impact of expedited but more costly transportation on this analysis ie. How might expedited transportation lower the total cost?

2-1. Alpha Products, Inc., is having a problem trying to control inventory. There is insufficient time to devote all its items equally. Here is a sample of some items stocked, along with the annual usage of each item expressed in dollar volume.

Use an ABC inventory analysis.

ITEM ANNUAL DOLLAR USAGE ITEM ANNUAL DOLLAR USAGE

a $7,000 k $80,000

b 1,000 l 400

c 14,000 m 1,100

d 2,000 n 30,000

e 24,000 o 1,900

f 68,000 p 800

g 17,000 q 90,000

h 900 r 12,000

i 1,700 s 3,000

j 2,300 t 32,000

Can you suggest a system for allocating control time?

2-2. Specify where each time from the list would be placed.

2-3. Would ABC analysis using annual demand in units be a better analysis than using annual value?