Let’s break down each problem one by one:
### Problem #1: Tom’s Workshop
**Given:**
* Pencils used per week = 100
* Lead time (time between order and delivery) = 2 weeks
#### (a) Minimum Level Tom Should Have to Prevent Stockout:
To avoid stockouts during the lead time, we need to calculate the **minimum
stock level** or **safety stock**. This is essentially the stock Tom should
have on hand to cover the 2 weeks of demand during the delivery time.
* **Demand per week** = 100 pencils
* **Lead time** = 2 weeks
Therefore, the **minimum level** to prevent stockout is:
$$
\text{Minimum Level} = \text{Demand per Week} \times \text{Lead Time}
= 100 \times 2 = 200 \text{ pencils}
$$
#### (b) Reorder Level with a Buffer of 5%:
The **reorder level** accounts for the regular demand during lead time plus
a buffer for safety stock. The buffer here is 5% of the demand during the
lead time.
* **Demand during lead time** = 100 pencils/week \* 2 weeks = 200 pencils
* **Buffer (5% of demand)** = 0.05 \* 200 = 10 pencils
The **reorder level** = Demand during lead time + Buffer:
$$
\text{Reorder Level} = 200 + 10 = 210 \text{ pencils}
$$
### Problem #2: Hector Stevens Manufacturing Firm
**Given:**
* Annual demand = 8,000 modems
* Unit cost per modem = \$10
* Carrying cost per modem per year = \$3
* Ordering cost = \$30 per order
* Working days per year = 260
#### Optimal Order Quantity (EOQ):
The Economic Order Quantity (EOQ) is calculated using the EOQ formula:
$$
EOQ = \sqrt{\frac{2 \times D \times S}{H}}
$$
Where:
* $D$ = Annual demand = 8,000 modems
* $S$ = Ordering cost = \$30 per order
* $H$ = Holding cost per unit per year = \$3
Substituting the values:
$$
EOQ = \sqrt{\frac{2 \times 8,000 \times 30}{3}} = \sqrt{\frac{480,000}
{3}} = \sqrt{160,000} = 400 \text{ modems}
$$
#### Expected Number of Orders per Year:
The expected number of orders per year is calculated by dividing the annual
demand by the EOQ:
$$
\text{Number of Orders} = \frac{D}{EOQ} = \frac{8,000}{400} = 20 \text{
orders per year}
$$
#### Expected Time Between Orders:
The time between orders can be calculated by dividing the working days per
year by the number of orders:
$$
\text{Time Between Orders} = \frac{260 \text{ days}}{20 \text{ orders}}
= 13 \text{ days between orders}
$$
### Problem #3: Raw Material #B
**Given:**
* Annual demand = 600 units
* Holding cost per unit per year = \$100
* Ordering cost = \$120 per order
* Raw material B is not critical to production
#### (a) EOQ (Economic Order Quantity):
We use the EOQ formula again:
$$
EOQ = \sqrt{\frac{2 \times D \times S}{H}}
$$
Where:
* $D$ = Annual demand = 600 units
* $S$ = Ordering cost = \$120 per order
* $H$ = Holding cost per unit per year = \$100
Substituting the values:
$$
EOQ = \sqrt{\frac{2 \times 600 \times 120}{100}} = \sqrt{\frac{144,000}
{100}} = \sqrt{1,440} = 37.95 \approx 38 \text{ units}
$$
#### (b) Total Inventory Cost (TIC):
The total inventory cost (TIC) is the sum of the ordering cost and the holding
cost:
$$
TIC = \left( \frac{D}{EOQ} \times S \right) + \left( \frac{EOQ}{2} \times H \
right)
$$
Substituting the values:
$$
TIC = \left( \frac{600}{38} \times 120 \right) + \left( \frac{38}{2} \times
100 \right)
$$
$$
TIC = (15.79 \times 120) + (19 \times 100) = 1,894.8 + 1,900 = 3,794.8
$$
#### © Number of Orders per Year:
$$
\text{Number of Orders} = \frac{D}{EOQ} = \frac{600}{38} \approx
15.79 \approx 16 \text{ orders per year}
$$
#### (d) Order Frequency:
The order frequency is the time between orders, which can be calculated by
dividing the number of working days by the number of orders per year.
Assuming a 260-day working year:
$$
\text{Order Frequency} = \frac{260 \text{ days}}{16 \text{ orders}} =
16.25 \text{ days between orders}
$$
#### € Model Recommendation:
Since raw material B is not critical to production, the EOQ model works well
for this scenario. The order frequency is reasonable, and the total cost is
minimized using this model.
### Problem #4: Raw Material #A (Critical and Perishable)
**Given:**
* Annual demand = 6,000 units
* Holding cost per unit per year = \$720
* Ordering cost per order = \$80.40
* Raw material A is critical and perishable
#### (a) EOQ (Economic Order Quantity):
Using the EOQ formula:
$$
EOQ = \sqrt{\frac{2 \times D \times S}{H}}
$$
Where:
* $D$ = Annual demand = 6,000 units
* $S$ = Ordering cost = \$80.40 per order
* $H$ = Holding cost per unit per year = \$720
Substituting the values:
$$
EOQ = \sqrt{\frac{2 \times 6,000 \times 80.40}{720}} = \sqrt{\
frac{964,800}{720}} = \sqrt{1,340} = 36.61 \approx 37 \text{ units}
$$
#### (b) Total Inventory Cost (TIC):
$$
TIC = \left( \frac{D}{EOQ} \times S \right) + \left( \frac{EOQ}{2} \times H \
right)
$$
Substituting the values:
$$
TIC = \left( \frac{6,000}{37} \times 80.40 \right) + \left( \frac{37}{2} \times
720 \right)
$$
$$
TIC = (162.16 \times 80.40) + (18.5 \times 720) = 13,017.86 + 13,320 =
26,337.86
$$
#### © Number of Orders per Year:
$$
\text{Number of Orders} = \frac{D}{EOQ} = \frac{6,000}{37} \approx
162.16 \approx 162 \text{ orders per year}
$$
#### (d) Order Frequency:
The order frequency is:
$$
\text{Order Frequency} = \frac{260 \text{ days}}{162 \text{ orders}} \
approx 1.60 \text{ days between orders}
$$
#### € Model Recommendation:
Since raw material A is critical and perishable, it’s important to maintain a
consistent supply, and the EOQ model will help minimize costs while
ensuring availability. Regular orders are required to meet the demand
without overstocking.
Let me know if you’d like further clarification on any of the steps!
