Question

4) Chapter 13, problem 33 (page 598)

Given the following list of items

a) classify the items as A, B, or C

b) Determine the economic order quantity for each item (round to the nerest whole unit)

item	est annual demand	ordering cost	holding cost %	unit price
h4	20000	50	20	2.5
h5	60200	60	20	4
p6	9800	80	30	28.5
p7	14500	50	30	12
p8	6250	50	30	9
p9	7500	50	40	22
ts	21000	40	25	45
ts2	45000	40	25	40
ts3	800	40	25	20
v1	33100	25	35	4

Answer 1

4.

A.

Step 1:

Calculate the dollar value of each item and sort them from highest to lowest value.

item	est annual demand	ordering cost	holding cost %	unit price	Total dollar value
ts2	45000	40	25	40	1800000
ts	21000	40	25	45	945000
p6	9800	80	30	28.5	279300
h5	60200	60	20	4	240800
p7	14500	50	30	12	174000
p9	7500	50	40	22	165000
v1	33100	25	35	4	132400
p8	6250	50	30	9	56250
h4	20000	50	20	2.5	50000
ts3	800	40	25	20	16000

Step 2:

Calculate the % dollar value of each item, communilative % of dollar value of each item and classify the items into A, B & C.

item	est annual demand	ordering cost	holding cost %	unit price	Total dollar value	% of dollar volume	Cumulative % of dollar value	Classification
ts2	45000	40	25	40	1800000	46.65	46.65	A
ts	21000	40	25	45	945000	24.49	71.14	A
p6	9800	80	30	28.5	279300	7.24	78.38	A
h5	60200	60	20	4	240800	6.24	84.62	B
p7	14500	50	30	12	174000	4.51	89.12	B
p9	7500	50	40	22	165000	4.28	93.40	B
v1	33100	25	35	4	132400	3.43	96.83	C
p8	6250	50	30	9	56250	1.46	98.29	C
h4	20000	50	20	2.5	50000	1.30	99.59	C
ts3	800	40	25	20	16000	0.41	100.00	C
				Total =	3858750

B.

EOQ = (2*annual demand*ordering cost/(holding cost % * unit price))^.5

item	est annual demand	ordering cost	holding cost %	unit price	EOQ
ts2	45000	40	25	40	600
ts	21000	40	25	45	386
p6	9800	80	30	28.5	428
h5	60200	60	20	4	3005
p7	14500	50	30	12	635
p9	7500	50	40	22	292
v1	33100	25	35	4	1087
p8	6250	50	30	9	481
h4	20000	50	20	2.5	2000
ts3	800	40	25	20	113