# Review Problem - Deterministic Inventory

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```					OSCM 320                                                         Name (please print):_________________________________
Fall 2009
Homework #5                                                                   Time section meets:______________________
Instructions:
1. Hand in (at least) the first page of this handout. Please place your answers where indicated below. For those
on loose-leaf paper or equivalent.
2. No work = no credit. Attach charts as indicated and attach any other sheets used for calculations.
3. Include your name and the time your section meets where indicated above.
4. All pages of your homework should be stapled in sequential order. The first page of this handout should be the first
page of what you submit. Please use loose-leaf paper or equivalent (i.e., no ripped out notebook paper).
5. Make sure all work is legible so that you can receive credit.
6. Do NOT put your social security number or student identification number on your homework.
7. Homework is due by 5:00 p.m. On Friday December 11. Please do not bring it to the LOMIS office. Slide it under my
door.

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1B.
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1C.
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2B.
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3A.
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3B.
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3C.
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3D.
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OSCM320                                                   Fall 2009                                        Homework #5
1. Annual demand for an item is 5,000 units. The holding cost rate is 50% of the item cost. Ordering costs are \$100/
order. Quantity discounts are available according to the schedule below:

Quantity          Price per Unit (\$)
1-99              4.00
100-499           3.80
500-999           3.60
1,000+            3.40

Assuming all units are discounted,

A.) What is the optimal order quantity? (2 Points)

B.) What is the total annual cost of your policy? (2 Points)

C.) Assume 50 5-day weeks per year. If the lead-time is 2 weeks, what should the reorder point be? (2 points)

2. Annual demand for an item is 15,000 units and the order cost is \$24.00 per order. Holding cost is \$7.00 per unit per
year. The purchase cost of each unit is \$40.00. The standard deviation of daily demand is 12 units. Assume 260 days in
the year and a lead-time of 10 days. Using this information, answer the questions below.

A) If a service level of 97% is desired during the reorder interval, what is the reorder point?

B) Suppose a safety stock of 50 is currently maintained. What percentage of order cycles would you expect to incur a
stockout?

3. A large bakery buys flour in 25-pound bags. The bakery uses an average of 121,500 pounds of flour each year. Each
bag of flour costs \$100 and annual carrying costs are estimated to be 15% of the cost of the product. Preparing an
order and receiving a shipment of flour costs \$4 per order.

A.) What is the economic order quantity? (2 points)

B.) How many times per year will an order be placed? (2 points)

C.) Assuming a lead time of 2 days and 250 days per year what would be the reorder point? (2 points)

D.) What is the total annual cost expected under your policy? (2 points)

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