Solutions To Sample Problems From Chapter 4

4.1

When to order and how much to order.

4.4

a) Sum total of ending inventories is 26 + 38 + 31 + 22 + 13 + 9 + 16 + 5 = 160.

Monthly holding cost h = Ic where I = monthly interest rate and c = value
of item. In this case:
I = (.20 + .03 + .02)/12 = .02083 . . . per month
c = $8,000
Hence, h = Ic = $166.67/truck/month.
total holding cost = (160)(166.67) = $26,666.67.

b)

Since we observed a cost of $26,666.67 for 8 months, the average annual cost would
be approximately
(26,666.67)
2/3

4.5

= $40,000 per year

Total cost in 5 years = 12,500 + 5(2,000) = $22,500.

Let s = yearly savings as fraction of sales.

Then s solves
(80,000)(s)(5) = $22,500
s = 05625 (answer 5.625% per
year)

4.7

a) 400 per year

b)

200
6 wks
Jan

6 wks
Jun

Note: This diagram is not to scale.

Avg

(200)(6) + (200)(6) (200)(12)

=
= 46.1538
52
52

c) = 6 weeks = 6/52 years. From part (a), = 400/year.

Hence = (6/52)(400) = 46.1538. (Same as the answer to part (b).)
4.9

The demand rate is 720 per year.

a)

1 One truck per week implies shipments of 14 housings each week. Therefore
the cost is (300 + 160)(52) = $23,920.
2. Since each truck holds 40 housings, it follows that this policy results in
720/40 = 18 shipments of one full truckload.
Cost = (300 + 160)(18) = $8,280.
3. 720/120 = 6 shipments per year of 3 truckloads each shipment.
Cost = 6(300) + 18(160) = $4,680.

b) The highest annual cost corresponds to policy 1. If demand is highly variable

and/or unpredictable, shipping one truck per week will minimize the likelihood
that stockouts are incurred. If stockouts of the casings are very costly, this policy
could be optimal in a systems sense.

4.12

= (1250)(.18) = 225
c = $18.50
I = .25
h = Ic = (.25)(18.50) = 4.625
K = 28
a) Q* =

2 K
(2)(28)(225)
=
= 52
(.25)(18.50)
h
T = Q*/ = 52/225 = .2311 yrs.

b) T = 12.02 weeks
Hence, r = = (225/52)(6) = 25.96 26 units

c) If Q = 225, the average inventory level is Q/2 = 225/2 = 112.5. The annual
holding cost is (112.5)(4.625) = $520.31. At the optimal solution, the annual
holding cost is (52/2)(4.625) = $120.25.
The excess holding cost is $400.06 annually.
The annual holding and set-up cost incurred by this policy is $520.31 + 28 =
$548.31 since there is only one set-up annually.
The average annual holding and set-up cost at the optimal policy
is

2K h

(2)(28)(225)(4.65)

= $241.40.

Therefore the annual difference

= $306.91

4.14

a)

K = 100
I = .25

Hex Nuts
c

For hex nuts:

= .15
= 20,000

T2
b) 1.

(2)(100)(20,000)
(.25)(.15)

T1 = . Q
For molly screws:

Molly Screws

1 /

= 10,328

= 5164 years
(2)(100)(14, 000)
(.25)(.38)

Q 2/

= .38
= 14,000

5,4229

.3879 years

Average annual cost when ordered separately:

(2)(100)20,000)(.25)(.15)

(2)(100)(14,000 )(.25).38)

= 387.30 + $515.75 = $903.05

2

If both products are ordered when the hex nuts are ordered (every .5164
yrs.), then hex nut cost is the same. Molly screw cost is only the holding
cost.
Qmolly = () (1) = (14,000)(.5164) = 7230.
Holding cost = (7230/2)(.25)(.38) = $343.43
Total cost of this policy = $387.30 + 343.41 = $730.73
(a savings of $172.34 annually from ordering separately).

3. If both products are ordered when the molly screws are normally ordered
(every .3878 yrs.), then the lot size for the hex nuts is:
Qhexnuts = T2 = (20,000)(.3878) = 7756
Holding cost = (7756/2)(.25)(.15) = $145.43
The total cost of this policy is $515.75 + $145.43 = $661.18 which
represents a savings of $241.87 over ordering separately.

4.19

K
c
I

=
=
=
=
=
=

150/month = 1800/year
720/year
700
85.00
.28
Ic(1 - /P) = (.28)(85)(1-720/1800) = 14.28

a)

Q* =

b)

T1
T

=
=

T2 =
c)

2K
(2)(700)(720)
=
= 266
h'
14.28
Q*/P = 266/1800 = .1478 years (up time)
Q*/ = 266/720 = .3694 years (cycle time)
T - T1 = .3694 - .1478 = .2216 years (down time)

Maximum inventory level = H = Q*[1 - /P]

= 266[1-720/1800] = 159.60
Maximum dollar investment = (159.60)(85.00) = $13,566.00.

4.21

a)

Optimal number of single rolls to purchase

Q(0) =

(2)(1)(4)
=8
(.25)(.45)

where = 4
I = .25
K = 1
c0 = .45
b)

If you buy in single packs, the average annual cost is

c0 +

2K Ic0

= (4)(.45) + (2)(1)(4)(.25)(.45)
= $2.75 yearly

If you buy in 12 packs, the average annual cost is

c1

Ic1Q K
(.25)(.42)(12)
+
= (4)(.42) +
2
Q
2
which is slightly less expensive.

(1)(4) = $2.64
12

c) It may be inconvenient to carry and store the tissue. A 12 pack requires three
years before it is completely consumed. The tissue may become brittle during that
time.

4.26 First we find the space consumed by lettuce and zucchini.

.45/.29 = 1.55 lettuce consumes (.5)(1.55) = .775
.25/.29 = .862 zucchini consumes (.5)(.862) = .431
Computing the respective EOQs, we have

EOQtom

(2)(100)(850)
= 1531
(,.25)(.29)

EOQlettuce

(2)(100)(1280)
= 1509
(.25)(.45)

EOQzucchini

(2)(100)(630
= 1420
(.25)(.25)

Next we find the value of the multiplier m.

m =

W
1000
1000
=
=
wi EOQi (.5)(1531) + (.775)(1509) + (.431)(1420) 2547

= .3926

Hence, the optimal order quantities are:

Qtomatoes

= (1531)(.3926) = 601

Qlettuce

= (1509)(.3926) = 592

Qzucchini

= (1420)(.3926) = 558

Checking that the constraint is satisfied:

(.5)(601) + (.775)(592) + (.431)(558) = 999.8.

4.29

The input data for this problem are:

2500
5500
1450

P
45000
40000
26000

h
2.88
3.24
3.96

h
2.7200
2.7945
3.7392

K
80
120
60

a) First we compute T .
T

(2)(80 + 120 + 60)

(2.72)(2500) + (2.7945)(5500) + (3.7392)(1450)

= .1373

years
b) and c)
The order quantities for each item are given by the formula

Qj

= T j.

Q1
Q2
Q3

= 343.21
= 755.05
= 199.06

Obtain:

The respective production times are given by Tj = Qj/Pj.

Substituting, one obtains:

T1
T2
T3

= .007626
= .018876
= .007656

It follows that the total up time each cycle is the sum of these three quantities
which gives: total up time = .03416. The total idle time each cycle is .1373 .0342 = .1031. The percentage of each cycle which is idle time is thus
.1031/.1373 = 75%.

d) Using the formula

n

G(T) = (K

/ T + hj ' j T / 2)

j =1

one obtains, G(T) = $3787.82 annually.

4.35

First find optimal policy for supplier A.

= (40)(12) = 480

G0
G1

500

G2

1000

All Units

Q(2)

(2)(150)(480
(..23)(1.10)

Q(1)

(2)(150)(480)
(.23)(1.20)

= 754

= 722

not realizable.

OK

Compare costs at 1000 and 722.

At 1000: G2(1000)=(480)(1.10)+

(150)(480) (.223)(1.10)(1000)
+
1000
2

= $726.50

At 722:

G1(722) = (480)(1.20) + (2)(150)(480)(.23)(1.20)

= $775.36

If they use supplier A, then standing order should be 1000 units at cost $726.50
However, if they use supplier B:
Slope =
1.05

875
Slope =
1.25

700

First find EOQs:

at $1.25

at $1.05: Q

*
0

Cost at Q 1:

=
=

(2)(150)(480)
(.23)(1.25)

= 708

(2)(480)[150 + 875 735]

(.23)(1.05)

not realizable

= 1074 OK.

c1 + [K + R1 c1 q1 ]+ IR1 + c1 (Q * q1 )

= (480)(1.05) +

480
.23
[150 + 875 735]+ [875 + 1.05(374)]
1074
2

= $779.39
Use supplier A at cost of $726.50 annually.
Standing order should be 1000 units.

4.45

Type
Q
A
B
C
D
E
F
G
H

a), b) and c).

Lambda

25900
64833
42000
105135
14400
36046
46000
115148
12500
31290
75000
187741
30000
75097
18900
47311

Prod Rate

Cost

h'

h'lam

1125000

0.003

0.00063

0.000615

120

15.94

1375000

0.002

0.00042

0.000407

80

17.10

825000

0.008

0.00168

0.001650

160

23.77

800000

0.002

0.00042

0.000395

80

18.21

450000

0.01

0.0021

0.002041

60

25.52

975000

0.005

0.00105

0.000969

120

72.69

725000

0.004

0.00084

0.000805

20

24.16

300000

0.007

0.00147

0.001377

60

26.03

700
T* =

223.42

2.503218

Average Annual cost Computation:

Set-up
47.9382
31.9588
63.9177
31.9588
23.9691
47.9382
7.98971
23.9691
279.640
d)

Holding
19.95233
21.40398
29.75042
22.79067
31.94210
90.98235
30.23542
32.58272
279.6400

Total Average Annual Cost: $559.28

A rotation cycle time of 2.5 years will clearly be too long to satisfy their
obligation of making three shipments per year for each type of button. They
would need to reduce the rotation cycle time to 4 months and adjust the lot
sizes down accordingly. The actual lot sizes would depend on the contractual
obligations the firm has with their customers.