Inventory Math Practice
1. A toy manufacturer uses approximately 32,000 silicon chips annually. The chips are used
at a steady rate during the 240 days a year that the plant operates. Annual holding cost is
$3 per chip, and ordering cost is $120. Determine the optimal order quantity. [1600 Unit]
2. A large law firm uses an average of 40 boxes of copier paper a day. The firm operates
260 days a year. Storage and handling costs for the paper are $30 a year per box, and it
costs approximately $60 to order and receive a shipment of paper.
i) What order size would minimize the sum of annual ordering and carrying
costs? [203.96 boxes]
ii) Compute the total annual cost using your order size from part. [$6118.82]
3. Garden Variety Flower Shop uses 750 clay pots a month. The pots are purchased at $2
each. Annual carrying costs per pot are estimated to be 30 percent of cost, and ordering
costs are $20 per order. The manager has been using an order size of 1,500 flower pots.
What additional annual cost is the shop incurring by staying with this order size?
[$105.24]
4. A manager receives a forecast for next year. Demand is projected to be 600 units for the
first half of the year and 900 units for the second half. The monthly holding cost is $2 per
unit, and it costs an estimated $55 to process an order.
i) Assuming that monthly demand will be level during each of the six-month
periods covered by the forecast, determine an order size that will minimize
the sum of ordering and carrying costs for each of the six-month periods.
[First Half- 74.16, Second Half- 90.82]
ii) If the vendor is willing to offer a discount of $10 per order for ordering in
multiples of 50 units, would you advise the manager to take advantage of
the offer in either period? If so, what order size would you recommend?
[Yes; First Half-50, Second Half-100]
5. A chemical firm produces sodium bisulfate in 100-pound bags. Demand for this product
is 20 tons per day. The capacity for producing the product is 50 tons per day. Setup costs
$100, and storage and handling costs are $5 per ton a year. The firm operates 200 days a
year.
i) How many bags per run are optimal? [516.4 Bag]
ii) What would the average inventory be for this lot size? [309.84]
6. The Dine Corporation is both a producer and a user of brass couplings. The firm operates
220 days a year and uses the couplings at a steady rate of 50 per day. Couplings can be
produced at a rate of 200 per day. Annual storage cost is $2 per coupling, and machine
setup cost is $70 per run.
i) Determine the economic run quantity. [1013.25]
ii) Approximately how many runs per year will there be? [Approx. 11]
iii) Compute the maximum inventory level. [759.94]
7. A mail-order house uses 18,000 boxes a year. Carrying costs are 60 cents per box a year,
and ordering costs are $96. The following price schedule applies. Determine
i) The optimal order quantity. [5000 Unit]
ii) The number of orders per year. [3.6]
8. A jewelry firm buys semiprecious stones to make bracelets and rings. The supplier quotes
a price of $8 per stone for quantities of 600 stones or more, $9 per stone for orders of 400
to 599 stones, and $10 per stone for lesser quantities. The jewelry firm operates 200 days
per year. Usage rate is 25 stones per day, and ordering costs are $48.
i) If carrying costs are $2 per year for each stone, find the order quantity that
will minimize total annual cost. [600]
ii) If annual carrying costs are 30 percent of unit cost, what is the optimal
order size? [600]
iii) If lead time is six working days, at what point should the company
reorder? [150]
