MAR 4213 EOQ Modles - Answers to exercises 2.

MAR 4213EOQ Modles - Answers to exercises 2 1. Harley-Davidson has its engine assembly plant in Milwaukee and its motorcycle assembly plant in Pennsylvania. Engines are transported between the two plants using trucks ...

MAR 4213EOQ Modles - Answers to exercises 2 1. Harley-Davidson has its engine assembly plant in Milwaukee and its motorcycle assembly plant in Pennsylvania. Engines are transported between the two plants using trucks, with each trip costing $1,000. The motorcycle plant assembles and sells 300 motorcycles each day. Each engine costs $500, and Harley incurs a holding cost of 20 percent per year. How many engines should Harley load onto each truck? What is the cycle inventory of engines at Harley? 2. As part of its initiative to implement just-in-time (JIT) manufacturing at the motorcycle assembly plant in Exercise 1, Harley has reduced the number of engines loaded on each truck to 100. If each truck trip still costs $1,000, how does this decision impact annual inventory costs at Harley? What should the cost of each truck be if a load of 100 engines is to be optimal for Harley? 3. A North Face retail store in Chicago sells 500 jackets each month. Each jacket costs the store $100 and the company has an annual holding cost of 25 percent. The fixed cost of a replenishment order (including transportation) is $100. The store currently places a replenishment order every month for 500 jackets. What is the annual holding and ordering cost? On average, how long does a jacket spend in inventory? If the retail store wants to minimize ordering and holding cost, what order size do you recommend? How much would the optimal order reduce holding and ordering cost relative to the current policy? 4. Target purchases home goods made by a supplier in China. Target’s stores in the United States sell 200,000 units of home goods each month. Each unit costs $10 and the company has an annual holding cost of 20 percent. Placing a replenishment order incurs clerical costs of $500/order. The shipping company charges $5,000 as a fixed cost per shipment along with a variable cost of $0.10 per unit shipped. What is the optimal order size for Target? What is the annual holding cost of the optimal policy? How many orders per year does Target place? What is the annual fixed transportation cost? What is the annual variable transportation cost? What is the annual clerical cost? 5. Amazon sells 20,000 units of consumer electronics from Samsung every month. Each unit costs $100 and Amazon has a holding cost of 20 percent. The fixed clerical and transportation cost for each order Amazon places with Samsung is $4,000. What is the optimal size of the order that Amazon should place with Samsung? With the goal of reducing inventories, Amazon would like to reduce the size of each order it places with Samsung to 2,500 units (allowing it to get four replenishment orders every month). How much should it reduce the fixed cost per order for an order of 2,500 units to be optimal? This analysis is shown in worksheet 11-5. 6. Amazon sells 10,000 Lenovo PCs every month. Each PC costs $500 and Amazon has a holding cost of 20 percent. For what fixed cost per order would an order size of 10,000 units be optimal? For what fixed cost per order would an order size of 2,500 units be optimal? 7. A steel rolling mill can produce I-beams at the rate of 20 tons per week. Customer demand for the beams is 5 tons per week. To produce I-beams, the mill must go through a setup that requires changing to the appropriate rolling patterns. Each setup costs the mill $10,000 in labor and lost production. I-beams cost the mill $2,000 per ton and the mill has a holding cost of 25 percent. What is the optimal production batch size for I-beams? What is the annual setup cost of the optimal policy? What is the annual holding cost? 8. A steel rolling mill can produce I-beams at the rate of 20 tons per week. Customer demand for the beams is 5 tons per week. I-beams cost the mill $2,000 per ton and the mill has a holding cost of 25 percent. To produce I-beams, the mill must go through a setup that requires changing to the appropriate rolling patterns. The mill would like to produce I-beams in batches of 40 tons (resulting in a production batch every 8 weeks). For what changeover cost would this batch size be optimal? 12. Prefab, a furniture manufacturer, uses 20,000 square feet of plywood per month. Its trucking company charges Prefab $400 per shipment, independent of the quantity purchased. The manufacturer offers an all unit quantity discount with a price of $1 per square foot for orders under 20,000 square feet, $0.98 per square foot for orders between 20,000 square feet and 40,000 square feet, and $0.96 per square foot for orders larger than 40,000 square feet. Prefab incurs a holding cost of 20 percent. What is the optimal lot size for Prefab? What is the annual cost of such a policy? What is the cycle inventory of plywood at Prefab? How does it compare with the cycle inventory if the manufacturer does not offer a quantity discount but sells all plywood at $0.96 per square foot? Prefab should order 40,000 square feet. 13. Demand for fasteners at W.W. Grainger is 20,000 boxes per month. Holding cost at Grainger is 20 percent per year. Each order incurs a fixed cost of $400. The supplier offers an all unit discount pricing scheme with a price of $5 per box for orders under 30,000 and a price of $4.90 for all orders of 30,000 or more. How many boxes should Grainger order per replenishment? Grainger should order 30,000 units. 15. Demand for phones at Amazon is 5,000 per month. Holding cost Amazon is 25 percent and the company incurs a fixed cost of $500 for each order placed. The supplier offers an all unit quantity discount with a price of $200 per phone for all orders under 10,000, a price of $195 for all orders of 10,000 or more but under 20,000 and a price of $190 for all orders of 20,000 or more. How many phones should Amazon order per replenishment? Amazon should order 20,000 phones.