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LSCM 320 INVENTORY MANAGEMENT REVIEW 3/19/2020 FOR INDIVIDUAL HOMEWORK AND PRACTICE ON EOQ DUE MARCH 30 This set of questions is part of your Individual H/W due on March 30. Check your schedule it reflects as Individual H/W given and then H/W due on March 30. You must show your work on how you derived at your answer. For this individual H/W, you will work on understanding the simple Fixed EOQ. Question 1: The calculation for EOQ is given by first establishing what TAC is: Total Annual Cost (TAC) is the addition of carrying cost (1/2QVW) + Ordering costs (R/Q (A)) TAC = 1/2QVW + RA/Q OR 1 𝑅 𝑇𝐴𝐶 = 𝑄𝑉𝑊 + 𝐴 2 𝑄 Okay, so to solve for what is the total annual cost you add carrying cost to order cost. But then what is the EOQ? What is the economic order quantity (Q)? Looking at the equation above, how do you solve for the economic order quantity? What is Q? What is the formula/equation for Q? P. S. same question asked multiple ways. Work on this for the class discussion on March 30 and our virtual class Q& A on April 1. Question 2: Case Study: Baseball Card Emporium Baseball Card Emporium (BBE) of Lewistown, Pennsylvania, is a distributor of baseball cards to sports card retailers. Its market area encompasses most of Pennsylvania, eastern Ohio, and New Jersey. The cards are printed in Neenah, Wisconsin, and currently shipped to Lewistown via motor carrier transportation. Kenny Craig, vice president of logistics, has asked his staff to evaluate using air carrier service to ship the cards. Nick Gingher, director of distribution, has collected the following information: • • • • • • • • Annual Demand: 6000 cases of cards Case value (price) $ 96 each Inventory carrying cost (annual): 30 % Cost per order to replenish inventory: $75 In-transit inventory carrying cost: 18 % Transit time using a motor carrier (parcel ground): 4 days Motor carrier rate: $1.20 per cwt. (100 lbs) Unit weight: 50 lbs. per case The EOQ model can be developed in standard mathematical form, using the following variables: R = Annual rate of demand (units) LSCM 320 INVENTORY MANAGEMENT REVIEW 3/19/2020 Q = Quantity ordered (units) A = Cost of placing an order ($ per order) V = Value or cost of one unit of inventory ($ per order) W = Carrying cost per dollar value of inventory per year (% of product value) t = lead time (days) S = VW = Inventory carrying cost per unit per year ($ per unit per year) TAC = Total annual cost ($ per year) Therefore the TAC can be written as 1 𝑇𝐴𝐶 = 2 𝑄𝑆 + 𝐴𝑅 𝑄 From the above case study: 1. What is the EOQ for BBE in units? In pounds? 2. What is the total cost (not considering transportation-related expenses) of the EOQ? Question 3: Case Study: Cookies R Us Cookies R Us buys a premium brand of cookies from a vendor in Germany. Their annual demand is 150,000 cases. It costs the inventory manager $45 to place an order. The inventory manager says that it costs 25% to store (carry) a case of cookies. The cost of a case of cookies is $60. From the above case study: 1. What is the EOQ? 2. What is the cost of carrying one case for one year? 3. If the lead time is 10 days, what is the reorder point assuming that there is no uncertainty, and there are 250 days in one year? 4. What is the number of orders per year? 5. What is your total annual order costs?


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