Exam 20: Supplement C Special Inventory Models

A newsstand is trying to determine how many bundles of newspapers to stock. For each bundle, the newsstand makes $20. However, they lose $5 per bundle if they do not sell. The following discrete probability distribution has been estimated for their daily demand. How many bundles should they stock?

Warren's Ice Cream makes 4 different flavors of ice cream using their secret process and top-secret recipes. Each of their flavors is equally popular and experiences a demand of 5,000 gallons/year. Warren's process is capable of producing 100 gallons/day once they incur the $25 setup cost. The ice cream holding cost is 10% of the $5 per gallon price. Warren's plant runs 250 days a year and stays busy doing so, but management feels they can add another flavor to their product line and increase their revenue. Which of the following statements is appropriate for this scenario?

The ________ is the optimal lot size in situations in which replenishment is not instantaneous.

Use of the single-period model will maximize profit in every season.

The need for one-time inventory decisions also can arise in manufacturing plants when ________ items are made to a single order and ________ are high.

A production manager is making a decision on batch size for a product with an annual demand of 25,000 units per year. The setup cost for each batch is $45 and once the setup is complete, the product may be produced at the rate of 650 units per day. There is a holding cost of $2 per unit per year and the plant operates on a 250-day production year. How big should the production batch be and how long (in days) will it take to produce the batch?

In a one-period inventory model, the higher the after-season sales price, the higher the order placed at the start of the season.

When faced with a quantity discount situation, the first EOQ should be calculated using the ________ price.

Scenario C.1 Jerry Allison is in charge of production for a small producer of plumbing supplies. The cricket model has an estimated annual demand of 12,000 units and can be produced at a production rate of 90 units per day. The company produces (and sells) the cricket 300 days per year. Setup cost to produce this model averages $22 and the item has a holding cost of $3 per unit per year. -Use the information in Scenario C.1. How many production runs per year are needed if Jerry chooses to produce at his economic production lot size (ELS)?

As an inventory manager, you must decide on the order quantity for an item. Its annual demand is 1,000 units. Ordering costs are $50 each time an order is placed, and the holding cost is 25 percent of the per-unit price. Your supplier provided the following price schedule. What ordering-quantity policy do you recommend?

Why are there discontinuities (areas where the curve jumps up or down and is not smooth) in the total cost curve in the quantity discount model?

When facing quantity discounts, the EOQ found with the lowest price level is always the lowest total cost plan.

Scenario C.2 Egan Schranz sells Klammelhoffer skis out of his store in the Alps. The store makes a $75 profit per unit sold during the ski season, but it will take a $25 loss per unit if sold after the season is over. The following discrete probability distribution has been estimated for the season's demand. -Use the information in Scenario C.2. What is the best order quantity?