Management: Problem Sets
9.2) A company is using a carrier to deliver goods to a major customer. The annual demand is $2,500,000, and the average transit time is 10 days. Another carrier promises to deliver in 7 days. What is the reduction in transit inventory?
I = tA=(10 – 7 ) 2,500,000=$7,500,000=$20,547.90 365365 365
9.4) A florist carries an average inventory of $12,000 in cut flowers. The flowers require special storage and are highly perishable. The florist’s estimates capital costs at 10%, storage costs at 25%, and risk costs 50%. What is the annual carrying cost?
10%+25%+50%=85%X$12,000 =$10,200
9.6) An importer operates a small warehouse that has the following annual costs. Wages for purchasing are $45,000, purchasing expenses are $30,000, customs and brokerage costs are $25 per order, the cost of financing the inventory is 8%, storage costs are 6%, and the risk costs are 10%. The average inventory is $300,000, and 6000 orders are placed in a year. What are the annual ordering and carrying costs?
Annual ordering cost = $75,000+($25 * 6000) = $225,000
Annual carrying cost:
.08+. 06+. 10 = 24%
Annual carrying cost = 300,000 * .24 = $72,000
9.8) Given the following data, calculate a level production plan, quarterly ending inventory, and average quarterly inventory. If inventory-carrying costs are $6 per unit per quarter, what is the annual carrying cost? Opening and ending inventory are zero.
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Totals
Forecast Demand 5000 7000 8500 9500 30,000
Production 7500 7500 7500 7500 30,000
Ending Inventory 2500 3000 2000 0 Average Inventory 1250 2750 2500 1000 Inventory Cost 7500 16500 15000 6000 45000
9.14) If the annual cost of goods sold is $12,000,000 and the average inventory is $2,250,000:
What is the inventory turns ratio?
$12,000,000 = 5.33
$2,250,000
What would be the reduction in average inventory if, through better materials management, inventory turns were increased to 10 times per year?
I = tA=(10 – 7 ) 2,500,000=$7,500,000=$20,547.90 365365 365
9.4) A florist carries an average inventory of $12,000 in cut flowers. The flowers require special storage and are highly perishable. The florist’s estimates capital costs at 10%, storage costs at 25%, and risk costs 50%. What is the annual carrying cost?
10%+25%+50%=85%X$12,000 =$10,200
9.6) An importer operates a small warehouse that has the following annual costs. Wages for purchasing are $45,000, purchasing expenses are $30,000, customs and brokerage costs are $25 per order, the cost of financing the inventory is 8%, storage costs are 6%, and the risk costs are 10%. The average inventory is $300,000, and 6000 orders are placed in a year. What are the annual ordering and carrying costs?
Annual ordering cost = $75,000+($25 * 6000) = $225,000
Annual carrying cost:
.08+. 06+. 10 = 24%
Annual carrying cost = 300,000 * .24 = $72,000
9.8) Given the following data, calculate a level production plan, quarterly ending inventory, and average quarterly inventory. If inventory-carrying costs are $6 per unit per quarter, what is the annual carrying cost? Opening and ending inventory are zero.
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Totals
Forecast Demand 5000 7000 8500 9500 30,000
Production 7500 7500 7500 7500 30,000
Ending Inventory 2500 3000 2000 0 Average Inventory 1250 2750 2500 1000 Inventory Cost 7500 16500 15000 6000 45000
9.14) If the annual cost of goods sold is $12,000,000 and the average inventory is $2,250,000:
What is the inventory turns ratio?
$12,000,000 = 5.33
$2,250,000
What would be the reduction in average inventory if, through better materials management, inventory turns were increased to 10 times per year?