9. Kelly's Service Station does a large business in tune-ups. Demand has been averaging 220 spark plugs per week. Holding costs are $.015 per plug per week and reorder costs are estimated at $12 per order. ?Kelly does not want to be out of stock on more than 2% of his orders. There is a two-day delivery time. The standard deviation of demand is five plugs per day. Assume a normal distribution of demand during lead time and a 7-day work week.
a. What inventory policy do you suggest for Kelly's station?
b. What is the average amount of safety stock for the reorder point in (a)?
c. What are the total variable weekly costs including safety stock costs?
10. The Academic Company mixes and bottles a high-energy beverage in various container types and sizes for college students. The aggregate forecast for the next four quarters in thousands of gallons is as follows:
Quarter Forecast Demand (per 1000 gallons)
1 400
2 700
3 850
4 650
Management makes the following assumptions:
- Each employee works 520 standard hours of regular time each quarter.
- On average, it takes 27 hours to produce and package 1 unit (1,000 gallons).
- Regular-time labor costs $8.00 per hour; overtime labor costs $12.00 per hour.
- Inventory holding cost is approximately $4.50/unit (1,000 gallons) per quarter based upon the ending inventory per quarter.
- Because of extremely hot weather, there is no beginning inventory available to start Quarter 1.
- Management wants a constant work force (no hiring or firing).
• Managers have also decided to always round up the number of employees needed to the next?whole integer (ie 37.2 yields 38 employees).
a. Determine how many employees would be needed to meet the peak required in Quarter 3.
b. Determine the annual inventory holding cost if Academic decides to use a level production rate?of 650 units per quarter.
c. Using a level schedule of 650 units per quarter, what will be the annual employee costs?
d. Using a level schedule of 650 units per quarter, what will be the annual employee costs if only? 30 employees are available and overtime is used?
e. If management decides on a chase demand strategy, with production last quarter of 600 units?and a rate change cost of $2.80 per 1000 gallons, determine the total rate change cost.
11. Henderson Furniture sells reproductions of 18th century furniture. For a particular table, the following information is valid.
Month? Demand
Jan 80
Feb 90
Mar 100
Apr 120
May 95
Jun 125
Jul 98
Aug 94
Sep 75
Oct 125
Nov 78
Dec 70
Holding Cost=$200 per table per year
Backorder Cost = $50 per table per year
Hiring Cost=$10 per unit?
Firing Cost=$12 per unit
a. Calculate the costs associated with level production and chase production strategies.
b. Which strategy do you recommend?