Practice Problems: Inventory Management
Problem 1:
ABC Analysis

Stock Number

Annual $ Volume

Percent of Annual $ Volume

J24

12,500

46.2

R26

9,000

33.3

L02

3,200

11.8

M12

1,550

5.8

P33

620

2.3

T72

65

0.2

S67

53

0.2

Q47

32

0.1

V20

30

0.1



S = 100.0

What are the appropriate ABC groups of inventory items?
Problem 2:
A firm has 1,000 "A" items (which it counts every week, i.e., 5 days), 4,000 "B" items (counted every 40 days), and 8,000 "C" items (counted every 100 days). How many items should be counted per day?
Problem 3:
Assume you have a product with the following parameters:
Annual Demand = 360 units
Holding cost per year = $1.00 per unit
Order cost = $100 per order
What is the EOQ for this product?
Problem 4:
Given the data from Problem 3, and assuming a 300day work year, how many orders should be processed per year? What is the expected time between orders?
Problem 5:
What is the total cost for the inventory policy used in Problem 3?
Problem 6:
Based on the material from Problems 3  5, what would cost be if the demand was actually higher than estimated (i.e., 500 units instead of 360 units), but the EOQ established in problem 3 above is used? What will be the actual annual total cost?
Problem 7:
If demand for an item is 3 units per day, and delivery leadtime is 15 days, what should we use for a simple reorder point?
Problem 8:
Assume that our firm produces Type C fire extinguishers. We make 30,000 of these fire extinguishers per year. Each extinguisher requires one handle (assume a 300 day work year for daily usage rate purposes). Assume an annual carrying cost of $1.50 per handle, production setup cost of $150, and a daily production rate of 300. What is the optimal production order quantity?