Question

A: Paul Peterson is the inventory manager for Office Supplies, Inc., a large office supply warehouse. The annual demand for paper punches is 20,000 units. The ordering cost is $100 per order, and the carrying cost is $5 per unit per year. What is the equation/formula to compute the economic order quantity? What is the EOQ?

B: Paul Peterson is considering manufacturing hole-punch devices. As in Part A, above, the annual demand is 20,000 units. The setup cost is $100 per order, and the carrying cost is $5 per unit per year. The demand rate is 100 units per day and the production rate is 150 units per day. What is the equation/formula to determine the economic lot size? What is the answer?

C: Paul Peterson (see Part B above) has found a supplier of hole-punches that offers quantity discounts. The annual demand is 20,000 units, the ordering cost is $100 per order, and the carrying cost is 0.5 of the unit price. For quantities that vary from 0 to 1,999, the unit price is $10. The price is $9.98 for quantities that vary from 2,000 units to 3,999 units and $9.96 for quantities that vary from 4,000 to 10,000 units. Should Paul take the quantity discount? Show calculation of EOQ and Total Cost for each of the 3 options. Hint: compute the economic order quantity. Hint: Complete the table below. shows the results of the total cost analysis. Discount Unit Order Material Ordering Carrying Total Number Price Quantity Cost Cost Cost Cost 1 $10 2 9.98 2,000 3 9.96 4,000

D: Kimberly Jones is in charge of four inventory items. The inventory demand and sales price for each item is summarized in the following table. Using ABC analysis, how should these inventory items be controlled? Demand Price Item 1 20,000 $ 10.00 Item 2 8,000 100.00 Item 3 7,000 5.00 Item 4 200 5.00 Hint: Using ABC analysis, determine the total annual dollar value of each item. Complete the Table below. Also show cumulative % of items and cumulative percentage of total cost. (Use “cost” for “price”). This can be used to categorize each inventory item. Which item should be carefully controlled? Cumulative Cumulative Item Annual Unit Annual $ Percentage Percentage Number Demand Cost Volume of Items of Cost 100.000 Total

E: Fun and Games, Inc. sells a variety of electronic games to children and adults. Annual demand for super Namco games is 360. Holding cost is $1 per game and ordering cost is $100 per order. Fun and Games, Inc., has determined that the economic order quantity should be 268 units given the foregoing data. What happens to the order quantity if annual demand is underestimated by 50%? In other words, what happens if actual annual demand is 540 units?

Answer 1

A: Paul Peterson is the inventory manager for Office Supplies, Inc., a large office supply warehouse. The annual demand for paper punches is 20,000 units. The ordering cost is $100 per order, and the carrying cost is $5 per unit per year. What is the equation/formula to compute the economic order quantity? What is the EOQ?

Economic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs. This production-scheduling model was developed in 1913 by Ford W. Harris and has been refined over time. The formula assumes that demand, ordering, and holding costs all remain constant.

Q=EOQ units and D=Demand in units (typically on an annual basis) and S=Order cost (per purchase order) and H=Holding costs (per unit, per year)​

Q = 894.42

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B: Paul Peterson is considering manufacturing hole-punch devices. As in Part A, above, the annual demand is 20,000 units. The setup cost is $100 per order, and the carrying cost is $5 per unit per year. The demand rate is 100 units per day and the production rate is 150 units per day. What is the equation/formula to determine the economic lot size? What is the answer?

D = 20000, S = 100, H = 5

EOQ= 894

If D = 365*100=36500 and S = 100 and H = 5

EOQ = 1208

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C: Paul Peterson (see Part B above) has found a supplier of hole-punches that offers quantity discounts. The annual demand is 20,000 units, the ordering cost is $100 per order, and the carrying cost is 0.5 of the unit price. For quantities that vary from 0 to 1,999, the unit price is $10. The price is $9.98 for quantities that vary from 2,000 units to 3,999 units and $9.96 for quantities that vary from 4,000 to 10,000 units. Should Paul take the quantity discount? Show calculation of EOQ and Total Cost for each of the 3 options. Hint: compute the economic order quantity. Hint: Complete the table below. shows the results of the total cost analysis. Discount Unit Order Material Ordering Carrying Total Number Price Quantity Cost Cost Cost Cost 1 $10 2 9.98 2,000 3 9.96 4,000

D = 20000, S = 100, H = .05

EOQ = 2828

The EOQ is 2828 meaning anything below EOQ, the cost of holding will be higher. And hence Paul should offer discounts for larger quantity.  

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D: Kimberly Jones is in charge of four inventory items. The inventory demand and sales price for each item is summarized in the following table. Using ABC analysis, how should these inventory items be controlled? Demand Price Item 1 20,000 $ 10.00 Item 2 8,000 100.00 Item 3 7,000 5.00 Item 4 200 5.00 Hint: Using ABC analysis, determine the total annual dollar value of each item. Complete the Table below. Also show cumulative % of items and cumulative percentage of total cost. (Use “cost” for “price”). This can be used to categorize each inventory item. Which item should be carefully controlled? Cumulative Cumulative Item Annual Unit Annual $ Percentage Percentage Number Demand Cost Volume of Items of Cost 100.000 Total

Table missing

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E: Fun and Games, Inc. sells a variety of electronic games to children and adults. Annual demand for super Namco games is 360. Holding cost is $1 per game and ordering cost is $100 per order. Fun and Games, Inc., has determined that the economic order quantity should be 268 units given the foregoing data. What happens to the order quantity if annual demand is underestimated by 50%? In other words, what happens if actual annual demand is 540 units?

If the actual demand is 540 and not 360,

the EOQ becomes 328 and not 268.

Because the EOQ is wrongly estimated earlier, the total costs related to ordering, receiving, and holding inventory will be higher than it should be.

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