1. Demand for the Deskpro computer at Best Buy is 1,000 units per month. Best Buy incurs a fixed order placement, transportation, and receiving cost of $2,000 each time an order is placed. Each computer costs Best Buy $500 and the retailer has a holding cost of 15 percent. How many computers should Best Buy’s store manager order in each lot? How many orders will the store manager place each year?
2. Determine the order quantity that leads to the lowest total annual inventory cost for the following case using the quantity discount model. Show all your work. Annual demand = 120,000 units Order cost = $100 per order Annual inventory holding rate = 20% Price per unit depends on order quantity according to the following schedule: Orders of 0 to 4,999 units: $3.00 per unit Orders of 5,000 to 9,999 units: $2.96 per unit Orders of 10,000 or more units: $2.92 per unit
3. You purchase a part that has a normally distributed daily demand with a mean of 120 units and a standard deviation of 30 units. The source of supply is reliable and maintains a constant lead time of five days. The EOQ is 936 units. What is the safety stock and statistical reorder point that leads to a service level of 95% (assume z = 1.64)? What would be the reorder point for a service level of 97.5% (assume z = 1.96)?
4. Calculate the economic manufacturing quantity to minimize the total annual inventory cost for the following situation: Annual demand = 10,000 units per year Daily production rate = 100 units per day Workdays per year = 250 days Order cost = $20 Annual inventory holding rate = 20% Total cost of a finished unit = $10 How many inventory cycles are there in one year?
5. An independent bookstore in Fort Collins must decide how many copies to order of a new book, Power and Self-Destruction, an expose on a famous politician’s scandals. Interest in the book will be intense at first and then fizzle quickly as attention turns to other celebrities. The book’s retail price is $40 and the wholesale price (cost to the bookstore) is $15. The publisher will buy back the retailer’s leftover copies at full refund, but the bookstore must pay $8 in shipping and handling for each book returned to the publisher, which means the salvage value is $7. The demand forecast can be represented by a normal distribution with a mean of 200 and standard deviation of 50. What order quantity maximizes the bookstore’s expected profit?