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COMM 225: POM
TOPIC
4
:
INVENTORY
MANAGEMENT
–
QUESTION
S
(
Tutorial
with Answers
)
Q1 (Ref: Q.
13

12, p583
)
: The
purchasing
manager for
the Pacific Steel company must determine a policy for
ordering coal to operate 12 converters. each converter
requires exactly 5 tons of coal per day to operate , and
the firm operates 360 days per year . the purchasing
manger has determined t
hat the ordering cost is $80
per order , and the cost of holding coal is 20% of the
average value of inventory held . the purchasing
manager has negotiated a contract to obtain the coal
for $12 per ton for the coming year.
a.
Determine the optimal quantity of
coal to
receive in each order.
b.
Determine the total inventory

related costs
associated with the optimal ordering policy
(don’t include the cost of the coal).
c.
If the five days lead time is required to receive
an order of coal, how much coal should be in
han
d when an order is placed?
Answers:
Optimal quantity of coal =1200 tons
; Total
inventory

related costs = $2880
;
Re

order point = 300
tons.
Q2
(Ref: Q.
13

23, p585
)
: T
he
bookstore at Tech
purchases jackets emblazoned with the school name
and logo from a vendor. The vendor sells
the
jackets to
the store for $38 apiece. The cost to the bookstore for
placing an order is $120, and the annual carrying cost is
25% of the cost o
f jacket. The bookstore manager
estimates that 1700 jackets will be sold during the year.
The vendor has offered the bookstore the following
volume discount schedule:
Order Size
Discount
1

299
300

499
500

799
800+
0%
2%
4%
5%
What is the bookstore op
timal order quantity, give this
quantity discount information?
Answers:
Optimal quantity of coal =
500
tons; Total
inventory

related costs =
$ 64,704
Q3
(Ref: Q.
13

32, p585
)
:
Kelly’s Tavern serves
Shamrock draft beer to its customer. The daily demand
for
beer is normal distributed, with an average of 20
gallons and stander deviation of 4 gallons. The lead
time required to receive an order of beer from the local
distributor is 12 days. Determined the safety stock and
reorder point if the restaurant want to
maintain a 90%
service level were desired?
What would be the increase
in the safety stock if a 95% service level is desired?
Answers:
At 90% service level, safety stock
=
17.87
gal
,
Reorder point = 257.87 gal;
at
95% service level,
s
afety
stock
=
22.86
gal
;
there is an increase of 5 gallons.
Q4
(Ref: Q.
13

38, p586):
The Mediterranean
Restaurant stocks a red Chilean table wine it purchases
from a wine merchant in nearby city. The daily demand
for the wine at the res
taurant is normally distributed
,
with a mea
n of 18 bottles and stander deviation of 4
bottles. The wine merchant sends a representative to
check the restaurant’s wine cellar every 30 days, and
during a recent visit there were 25 bottles in stock. The
lead time to receive an order is 2 days. The
restaurant
manger has requested an order size that will enable
him to
limit the probability of
a stock out to 5%.
What
is the order size?
Answers:
Order Size
=
588.3 bottles
Q5
(Ref: Q.
13

40, p586):
The East Coasters Bicycle
shop stocks bikes; helmets ; clothing; a variety of bike
parts including chains, gears , tires, wheels; and biking
accessories. The shop is in a storefront location on a
busy street and it has very limited storage space for
inven
tory. It often runs out of items and is unable to
serve customer. To help manage its inventory the shop
would like to classify the stock using the ABC system.
Following is a list of items the shop stocks and the
annual demand and unit value for each:
Item
Number
Annual
demand
Unit
cost
Item
Number
Annual
demand
Unit
cost
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
10
18
36
9
4
3
19
56
105
27
19
12
7
10
6
18
$8
16
30
1230
760
810
420
35
17
350
36
115
2300
245
665
28
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
110
74
8
10
7
5
5
46
32
101
83
54
14
9
7
16
$23
18
610
935
270
1400
900
67
160
45
12
16
42
705
37
26
Classify the inventory items according to the ABC
approach using dollar value of annual demand
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2
Answers:
Class
Items
Quantity
$
Value
%
Value
%
Quantity
A
4, 5, 6,
13, 20,
52
59,835
51
5.5
22, 23,
30
B
7, 10,
14,
77
30,640
26
8.2
15, 19,
21
C
1, 2, 3,
8, 9,
11,
811
27,493
23
86.3
12, 16,
17, 18,
24, 25,
26, 27,
28, 29,
31, 32
940
$117,968
100%
100%
Solutions
 Ratings 95
 Grade: A
 Questions 0
 Solutions 3821
 Blog 1
 Earned: $8541.05