The following table contains figures on the monthly volume and unit costs

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GhapterThirteen lnventoryManagement

a. Given the monthly usages in the following table, classiff the items in A, B, and C categories according to dollar usage:

Item Usa$e Unit Cost 4021 90 $1,400 9402 300 12 4066 30 700 6500 150 20 9280 10 r,020 4050 80 140 6850 2,000 10 3010 400 20 4400 5,000 5

b. Determine the percentage of items in each category and the annual dol1ar value for each category.

2. The following table contains figures on the monthly volume and unit costs for a random sample of 16 items from a list of 2,000 inventory items at a health care facility:

Item Unit Cost Usage ltem Unit Gost Usage

K34 $10 200 F99 20 60 K35 25 600 045 10 550 K36 36 150 D4B 12 90 M10 16 25 D52 15 110 M20 20 80 D57 40 120 245 80 200 N08 30 40 F14 20 300 P05 16 500 F95 30 800 P09 10 30

a. Develop an A-B-C classification for these items. b. How could the manager use this information? c. After reviewing your classification scheme, suppose that the manager decides to place item P05

into the A category. What are some possible explanations for this decision?

bu alts large bakery buys flour in 25-pound bags. The bakery uses an average of 1,215 bags a year. Pre- paring an order and receiving a shipment of flour involves a cost of $ 1 0 per order. Annual carrying costs a-re $75 per bag. a. Determine the economic order quantity. b. What is the average number of bags on hand? c. How many orders per year will there be? d. Compute the total cost of ordering and carrying flour. e. If holding costs were to increase by $9 per year, how much would that affect the minimum total

+MO ,rfflIlll- uses an averase of 40 boxes of copier paper a day. The firm operates 260 days a Ifl Y.u.. Storage and handling costs for the paper are $30 a year per box, and it costs approximately $60

to order and receive a shipment ofpaper. a. What order size would minimize the sum of amual ordering and carrying costsf flb{ . b. Compute the total annual cost using your order size from part a. c. Except for rounding, are annual ordering and carrying costs always equal at the EOQ? d. The office manager is currently using an order size of200 boxes. The partners ofthe firm expect

the office to be managed "in a cost-efficient manner." Would you recommend that the office manager use the optimal order size instead of 200 boxes? Justiff your answer.

5. Garden Variety Flower Shop uses 750 clay pots a month. The pots are purchased at $2 each. Annual carrying costs per pot are estimated to be 30 percent ofcost, and ordering costs are $20 per order. The manager has been using an order size of 1,500 flower pots. a. What additional annual cost is the shop incurring by staying with this order size? b. Other than cost savings, what benefit would using the optimal order quantity yield?

6. A produce distributor uses 800 packing crates a month, which it purchases at a cost of $ l0 each. The manager has assigned an annual carrying cost of35 percent ofthe purchase price per crate.

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