1. Assignment 4: Part (A)
Problem 1: A toy manufacturer uses approximately silicon chips annually. The Chips are used at a steady rate during the 240 days a year that the plant operates. Annual holding cost is 60 cents per chip, and ordering cost is $24. Determine
a) How much should we order each time to minimize our total cost
b) How many times should we order
c) what is the length of an order cycle (working days 288/year)
d) What is the total cost

2. What is the Optimal Order Quantity
D = 32000, H = .6, S = 24

3. How many times should we order
Annual demand for a product is 9600
D = 32000
Economic Order Quantity is 1600
EOQ = 1600
Each time we order EOQ
How many times should we order ?
D/EOQ
32000/1600 = 20

4. what is the length of an order cycle
working days = 240/year
32000 is required for 240 days
1600 is enough for how many days?
(1600/32000)(240) = 12 days

5. What is the Optimal Total Cost
The total cost of any policy is computed as
The economic order quantity is 1600
This is the total cost of the optimal policy

6. Assignment 4: Part (B)
A small manufacturing firm uses approximately 3400 pounds of chemical dye per year. Currently the firm purchases 300 pounds per order and pays $3 per pound.
The ordering cost is $100 and inventory carrying cost is 51 cents per unit per year.
D= 3400, S= 100, H=.51
a) The supplier has just announced that orders of pounds and more will be filled at a price of $2 per pound. Determine the order size that will minimizes the total cost.
b) If the supplier offered a discount at 1500 pounds instead of 1000 pounds, what order size will minimize total cost?

7. Ordering and Carrying Costs
The Total-Cost Curve is U-Shaped
Annual Cost
Ordering Costs QO
(optimal order quantity)
Order Quantity (Q)

8. Total Cost Cost Adding Purchasing cost doesn’t change EOQ TC with PR
TC without PR PR
EOQ
Quantity

9. Price Discount p1
Cost p2
Quantity

10. Total Cost Including Purchasing Cost
EOQ
Quantity

11. Total Cost Including Purchasing Cost
EOQ
Quantity

12. Total Cost Including Purchasing Cost
Quantity Q

13. Total Cost Including Purchasing Cost
EOQ
Quantity

14. The Problem
A small manufacturing firm uses approximately 3400 pounds of chemical dye per year. Currently the firm purchases 300 pounds per order and pays $3 per pound.
The ordering cost is $100 and inventory carrying cost is 51 cents per unit per year.
D=3400, S= 100, H=.51
a) The supplier has just announced that orders of pounds and more will be filled at a price of $2 per pound.
Q P ≥

15. The Problem
A small manufacturing firm uses approximately 3400 pounds of chemical dye per year. Currently the firm purchases 300 pounds per order and pays $3 per pound.
The ordering cost is $100 and inventory carrying cost is 51 cents per unit per year.
D=3400, S= 100, H=.51
b) Determine the order size that will minimizes the total cost.
If the supplier offered a discount at 1500 pounds instead of 1000 pounds, what order size will minimize total cost?
Q P ≥

16. Assignment D= 3400, S=100, H= .51 TC = HQ/2 + SD/Q + PD
b) If the supplier offered a discount at 1500 pounds instead of 1000 pounds, what order size will minimize total cost?
Q P ≥
D= 3400, S=100, H= .51
TC = HQ/2 + SD/Q + PD
TC ( Q = 1155 , P = 3) = .51(1155)/ (3400)/ (3400)
TC = = 10789
TC ( Q = , P = 2) = .51(1500)/ (3400)/ (3400)
TC = =