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## Practice Problems: Inventory Management

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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