Inventory Management
INVENTORY MANAGEMENT
Model 1
2. The Peace Care Hospital uses about 3,500 boxes of sterile bandages per month. The annual carrying cost rate is $2.90 per box per year. A typical box of sterile bandages costs $14.50 to purchase. The ordering cost is $25 each time an order is placed, regardless of the order quantity. There is storage space for at most 1,500 boxes of bandages at any time. The hospital operates 365 days per year. Peace Care Hospital would like to use the EOQ model.
(a) How many boxes of sterile bandages should be ordered each time an order is placed?
D = 12(3,500) = 42,000 boxes per year S = 25 $ per order C = 2.90 $ carrying cost per year per box held
(b) How many orders per year should be expected?
D/Q = 42,000/851 = 49.35 orders per year
(c) What is the expected TSC per year?
TSC = CQ/2 + SD/Q
= 2.90(851)/2 + 25(42,000)/851
= 1,233.95 + 1,233.84
= $2,467.79
(d) How many days should one order last, on average?
365(Q/D) = 365(851/42,000) = 7.4 days
Model 2
3. Terengganu Oil Refining buys crude oil on a long-term supply contract for RM38 per barrel. When shipments of crude oil are made to the refinery, they arrive at the rate of 12,000 barrels per day. Terengganu Oil uses the oil at a rate of 5,000 barrels per day and plans to purchase 600,000 barrels of crude oil next year. If the carrying cost is 30 percent of acquisition cost per unit per year and the ordering cost is RM11,600 per order: (a) What is the EOQ for the crude oil? (b) What is the total stocking cost (TSC) at the EOQ? (c) How many days worth of demand are supported by each order of crude oil? (d) How much needed storage capacity is expected for the crude oil? Answer (a) What is the EOQ for the crude oil?
D = 600,000 barrels per year S = 11,600 RM per order C = .30(38.00) = 11.4 RM carrying cost per year per barrel held p = 12,000 barrels per day supply
Model 1
2. The Peace Care Hospital uses about 3,500 boxes of sterile bandages per month. The annual carrying cost rate is $2.90 per box per year. A typical box of sterile bandages costs $14.50 to purchase. The ordering cost is $25 each time an order is placed, regardless of the order quantity. There is storage space for at most 1,500 boxes of bandages at any time. The hospital operates 365 days per year. Peace Care Hospital would like to use the EOQ model.
(a) How many boxes of sterile bandages should be ordered each time an order is placed?
D = 12(3,500) = 42,000 boxes per year S = 25 $ per order C = 2.90 $ carrying cost per year per box held
(b) How many orders per year should be expected?
D/Q = 42,000/851 = 49.35 orders per year
(c) What is the expected TSC per year?
TSC = CQ/2 + SD/Q
= 2.90(851)/2 + 25(42,000)/851
= 1,233.95 + 1,233.84
= $2,467.79
(d) How many days should one order last, on average?
365(Q/D) = 365(851/42,000) = 7.4 days
Model 2
3. Terengganu Oil Refining buys crude oil on a long-term supply contract for RM38 per barrel. When shipments of crude oil are made to the refinery, they arrive at the rate of 12,000 barrels per day. Terengganu Oil uses the oil at a rate of 5,000 barrels per day and plans to purchase 600,000 barrels of crude oil next year. If the carrying cost is 30 percent of acquisition cost per unit per year and the ordering cost is RM11,600 per order: (a) What is the EOQ for the crude oil? (b) What is the total stocking cost (TSC) at the EOQ? (c) How many days worth of demand are supported by each order of crude oil? (d) How much needed storage capacity is expected for the crude oil? Answer (a) What is the EOQ for the crude oil?
D = 600,000 barrels per year S = 11,600 RM per order C = .30(38.00) = 11.4 RM carrying cost per year per barrel held p = 12,000 barrels per day supply