Practice Problems: Inventory Management
Problem 1:
| ABC Analysis | ||
| Stock Number | Annual $ Volume | Percent of Annual $ Volume |
| J24 | 12,500 | 46.2 |
| R26 | 9,000 | 33.3 |
| L02 | 3,200 | 11.8 |
| M12 | 1,550 | 5.8 |
| P33 | 620 | 2.3 |
| T72 | 65 | 0.2 |
| S67 | 53 | 0.2 |
| Q47 | 32 | 0.1 |
| V20 | 30 | 0.1 |
| S = 100.0 | ||
What are the appropriate ABC groups of inventory items?
Problem 2:
A firm has 1,000 “A” items (which it counts every week, i.e., 5 days), 4,000 “B” items (counted every 40 days), and 8,000 “C” items (counted every 100 days). How many items should be counted per day?
Problem 3:
Assume you have a product with the following parameters:
Annual Demand = 360 units
Holding cost per year = $1.00 per unit
Order cost = $100 per order
What is the EOQ for this product?
Problem 4:
Given the data from Problem 3, and assuming a 300-day work year, how many orders should be processed per year? What is the expected time between orders?
Problem 5:
What is the total cost for the inventory policy used in Problem 3?
Problem 6:
Based on the material from Problems 3 – 5, what would cost be if the demand was actually higher than estimated (i.e., 500 units instead of 360 units), but the EOQ established in problem 3 above is used? What will be the actual annual total cost?
Problem 7:
If demand for an item is 3 units per day, and delivery lead-time is 15 days, what should we use for a simple re-order point?
Problem 8:
Assume that our firm produces Type C fire extinguishers. We make 30,000 of these fire extinguishers per year. Each extinguisher requires one handle (assume a 300 day work year for daily usage rate purposes). Assume an annual carrying cost of $1.50 per handle, production setup cost of $150, and a daily production rate of 300. What is the optimal production order quantity?
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