CHAPTER 11Solution 1. MICHAEL TRACIa. Optimal order quantity using the EOQ model:

Where:CP = $30 (preparation cost per order)A = 30 units demand periodCH = $2.00 carrying cost per periodEOQ = optimal order lot size

b. Average cycle stock = 30 units /2 = 15 unitsc. 12 periods x 30 units = 360 units (annual unit demand)360 units /30 units per order = 12 orders12 orders x $30 = $360 ordering cost per year15 units x $2.00 x 12 periods = $360 carrying cost per yearTotal = $720 per year2. LOUIES LOBSTER POTSa. Here is one spreadsheet layout. The formulae for the expected number of units short differ for each value of R.

Probs:.05.15.20.30.10.15.05

Demand During LT20212223242526

Cum. Prob..05.20.40.70.80.951

Pr D > DDLT.95.80.60.30.20.050

Expected No. Short2.901.951.15.55.25.050

Shortage cost for R = 20 is $72.50b.Probs:.2.4.2.1.1.0.0

Demand During LT20212223242526

Cum. Prob..20.60.80.90111

Pr D > DDLT.80.40.20.10000

Expected No. Short1.50.70.30.10000

Shortage cost for R = 20 is $37.503. THE ICU OPTICAL CLINICa.Demand / MonthProbabilityExpected Demand / Month

12.101.20

13.151.95

14.152.10

15.203.00

16.203.20

17.101.70

18.05 .90

19.05 .95

Average Monthly Demand:15.00

b.Expected

Numbers ofService

ROPStockoutsLevel

15.75.979

*16.35.990

17.15.996

18.05.999

19.001.000

Buffer Stock = ROP - 15 = 1 *Selected ROPc. The annual cost of carrying buffer stock is $7.50 (one unit).

5. THE SELDOM SEEN RANCHa. The Z value for a .10 probability of stocking out is 1.282:Safety Stock = (1.282)(1)(1.25)(40) = 64 balesb. Order Point = 1,000 + 64 = 1,064 balesc. SL = 1-0.1= 99%d. Horace should place an order for 2,500 bales whenever the number of bales on hand goes below 1,064.

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