# Q 13: consider a firm with a daily demand of 100 units, a production

Q 13: Consider a firm with a daily demand of 100 units, a production rate per day of 500 units, a setup cost of \$200, and an annual holding cost per unit of \$10. Suppose that the firm operates 300 days per year. How many units of inventory must their storage area be able to hold?

Q 14: If annual demand is 24,000 units, orders are placed every 0.5 months, and the cost to place an order is \$50, what is the annual ordering cost?

Q 15: If the Economic Order Quantity (EOQ) model is used to order material, which of the following represents the total annual variable cost that includes the annual costs of ordering and inventory holding?

D: Annual Demand, S: Ordering Cost/Order and H: Inventory holding cost per unit per year.

a)
b)
c)
d)
e)

Q 16: A.K. Plywood Products offers the following all-units quantity discount schedule for its 4 feet by 8 feet sheets of quality plywood.

Order Size Price
1-9 sheets \$25
10-49 sheets \$23
50-99 sheets \$21
100 sheets or more \$18

Miami Home Furnishings (MHF) orders plywood from A.K. Plywood Products. MHF’s accounting department determines an ordering cost of \$50 per order and an annual inventory holding cost percentage of 20% of the price of the item. The annual demand is 250 sheets. What should the order size be every time that an order is placed to minimize total annual cost?

Q 17: Consider the data given in the following table and identify the appropriate category for item C in an ABC classification.

Q 18: A company is using the Economic Order Quantity (EOQ) model to manage its inventories. Suppose its annual demand doubles, while the ordering cost per order and inventory holding cost per unit per year do not change. What will happen to the total annual variable cost? The annual variable cost includes the annual ordering cost and annual inventory holding cost?

a) It doubles.
b) It increases by 41.42%.
c) It remains the same.
d) The impact depends upon the value of the ordering cost.
e) It quadruples (increases by 400%).

Q 19: The annual demand for an item is 2400 units. The inventory holding cost is \$ 6.00 per unit per year. The demand is continuous and constant, that is, 200 units/month. The item is purchased in two lots. The size of the first lot is 1600 units and the size of the second lot is 800 units. Find the total annual cost of holding inventory.

Q 20: A manufacturing company sells its products directly to customers and operates 5 days a week, 52 weeks a year. The production department of this company can produce at the rate of 60 units per day. The setup cost for a production run is \$ 125.00. The cost of holding is \$ 4.00 per unit per year. The demand for the item is continuous and constant and is 3,900 units per year. (Note: The demand occurs only when the company is operating, that is, 5 days a week for 52 weeks). Find the optimum number of units to be produced in one batch (economic production quantity). Round the number to nearest integer.

Use the following data for the next three questions

Cost data
Regular time labor cost per hour \$10
Overtime time labor cost per hour \$15
Subcontracting cost per unit (labor only) \$80
Back order cost per unit per period \$20
Inventory holding cost per unit per period \$10
Hiring cost per employee \$500
Firing cost per employee \$400

Capacity data
Beginning workforce 40 employees
Beginning inventory 0 units
Beginning back orders (shortages) 0 units
Production standard per unit (hours) 2 hours of labor per unit
Regular time available per period (hours) 160 hours per period per employee
Overtime time available per period (hours) 30 hours per period per employee
Number of days per period 20 days
Number of working hours per day 8 hours
Subcontracting No Limit

Demand data
Period 1 3,920 units Period 5 3,800 units
Period 2 2,480 units Period 6 4,340 units
Period 3 2,200 units Period 7 4,820 units
Period 4 3,280 units Period 8 4,600 units

Q 21: Suppose you are designing a level aggregate plan using inventory and back orders (shortages). You are not using any overtime or subcontracting. What will be the production rate per period in the level aggregate production plan?

Q 22: Suppose you are designing a level aggregate plan using inventory and back orders (shortages). You are not using any overtime or subcontracting. How many workers per period (same for every period) are needed for the level aggregate plan?

Q 23: Suppose you are using a chase strategy without inventory and back orders (shortages). In chase strategy you have to meet the demand in every period using regular time production, overtime production and subcontracting. There are 40 workers in each period. When demand is less than the regular time production capacity, you produce only the number of units that are demanded and some of the workers may remain idle. You do not hire and fire workers. How much of the total regular capacity (number of units) remain unused?

Use the following data for the next two questions

A company has the following demand for the next six months.

MONTH DEMAND WORKING DAYS
January 500 21
February 630 20
March 580 22
April 520 19
May 510 20
June 560 18

Assume that an employee contributes 8 regular working hours per day. Overtime capacity is limited to a maximum of 25% of regular time capacity. In addition, the following data are available.

Time to produce one unit 4 hours
Shortage Cost \$ 10.00/unit/month
Beginning Inventory 0
Inventory Carrying Cost \$ 2.00/unit/month
Hiring Cost/Worker \$ 100
Firing Cost/Worker \$ 100
Regular Time Labor Cost \$ 10/hour
Overtime Labor Cost 20% more than the regular cost

Round the number of workers to the next higher integer and production to nearest lower integer.
Q 24: What is the overtime production capacity (maximum number of units that can be produced in overtime) in February if the number of workers is 15?

Q 25: Suppose chase policy is being used, that is, the number of workers is changed every month to match demand with capacity. How many workers will you fire in March? (Note: you do not need the beginning number of workers to solve this problem).

a) 2
b) None
c) 16
d) 14
e) Can not be determined