03 Jun Question M3 W ritten Assignment (Due December 7, 2014)
Question
M3 W ritten Assignment (Due December 7, 2014)
Submit your solutions to the following problems. Write your solutions clearly and neatly.
Show all your work to get credit!
1. (Chapter 9) A specialty coffeehouse sells Colombian coffee at a fairly steady rate of 65 pounds per week. The beans are purchased from a local supplier for $4 per pound. The coffeehouse estimates that it costs $50 in paperwork and labor to place an order for the coffee, and the annual holding cost is 20% of the purchasing price. (Use 52 weeks/year)
a. What is the economic order quantity (EOQ) for Colombian coffee?
b. What is the optimal number of orders per year?
c. What is the optimal interval (in weeks) between the orders?
d. (B O NUS 5 points) Assume that the current order policy is to buy the beans every 13 weeks. The manager says that the ordering cost of S = $50 is only a guess. Therefore, he insists on using the current policy. Find the range of S for which the EOQ you found in part a) would be preferable (in terms of a lower total replenishment and carrying costs) to the current policy of buying beans every 13 weeks.
2. (Chapter 9) A store has collected the following information on one of its products: Demand = 6,760 units/year
Standard deviation of weekly demand = 18 units Ordering costs = $40/order
Holding costs = $2/unit/year Cycle-service level = 90% Lead-time = 3 weeks
Number of weeks per year = 52 weeks
a. If the firm uses the continuous review system to control the inventory, what would be its order quantity and reorder point?
b. Assume that the firm decided to change to the periodic review system to control the
P, is calculated using the EOQ model. Forthe most recent review, an inventory clerk checked the inventory of this item and found 500 units. There were no scheduled receipts or backorders at the time. Determine how many units should the firm order.
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