INVENTORY MANAGEMENT : Practice Problems

Problem 1
Sharp Needles Co. markets special hypodermic needles to hospitals and is interested in reducing
their inventory. The annual demand is 1000 units, the setup cost or ordering cost is Rs.10 per
order and the cost of holding is Rs.0.50 per unit per year. Each hypodermic needle costs Rs.10.
Calculate (1) Economic Order Quantity, (2) Number of orders, (3) Expected time between
orders, (4) Total cost of inventory and (5) Total annual cost. Assume 250 working days per
year.
Problem 2
Consider problem 1. If the demand increases to1500 units, and the same order quantity is used,
what is the total cost of inventory? Determine the total costs if new order quantity is used?
Compare the two cases and comment.
Problem 3
A distributor operates a 250-day working year and the annual demand is 8000 units. The
average time to receive an order is 3 working days. Calculate the reorder point.
Problem 4
Using the following date, find the EOQ, Reorder point, and Total annual cost:
Annual demand, D = 1000 units
Ordering cost, S = Rs.5.00 per order
Holding cost, H = Rs.1.25 per unit per year.
Lead time, L = 5 days
Cost per unit, P = Rs. 12.50
Problem 5
A manufacturer gets an order to supply 24000 units over a period of one year. The set up cost is
Rs.200 per run and the inventory carrying cost is 12% of the unit cost. Each unit costs Rs.5.
Determine the (a) Economic lot size, (b) number of production runs, and (c) duration of each
run if the plant capacity is 2000 units per month.
Problem 6
Hayes electronics sells a particular brand of microcomputer. It costs the firm $450 each time it
places an order with the manufacturer. The cost of carrying inventory for one microcomputer is
$170 per year. The estimated annual demand is 1200 units. The store is open every day of the
year except Christmas Day. Determine the following: (a) Optimal order quantity per order
(b) Minimum total annual inventory costs, (c) The number of orders per year, and (d) The time
between orders (in working days)
Problem 7
Nathan manufacturing Company makes and sells specialty hub caps for the retail automobile
market. The annual demand is 1000 units with an average daily demand of 4 units. The
company produces 8 units per day. Set up costs are Rs.10 and holding cost is Rs. 0.50 per unit
per year. The plant operates 250 days a year. Determine the optimal quantity per order.

Inventory Management - Problems Dr. R. Jagadeesh

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INVENTORY MANAGEMENT ABC Analysis : Practice Problems

Problem 1
Bay Stores has the following ten items in the inventory. Classify the items using ABC analysis.
If all A items are counted monthly (every 20 working days), all B items are counted quarterly
(every 60 working days), and all C items are counted semiannually (every 120 working days),
how many items need to be counted each day in each group?
Item
M1
M2
M3
M4
M5
M6
M7
M8
M9
M10

Annual Demand
2500
4200
1250
5000
900
400
260
550
1600
2200

Unit price, $
40
13
42
10
17
450
1445
16
10
6

Problem 2
Warwick Stores has the following ten items in the inventory. Classify the items using ABC
analysis. If all A items are counted monthly (every 20 working days), all B items are counted
quarterly (every 60 working days), and all C items are counted semiannually (every 120
working days), how many items need to be counted each day in each group?
Item

Annual Demand

Cost per unit

A2
B8
C7
D1
E9
F3
G2
H2
I5
J8

3,000
4,000
1,500
6,000
1,000
500
300
600
1,750
2,500

50
12
45
10
20
500
1,500
20
10
5

Problem 3
Howard Electronics, a small manufacturer of electronic research equipment, has approximately
7,000 items in its inventory and has hired Joan Blasco-Paul to manage its inventory. Joan has
determined that 10% of the items in inventory are A items, 35% are B items, and 55% are C
items. She would like to set up a system in which all A items are counted monthly (every 20
working days), all B items are counted quarterly (every 60 working days), and all C items are
counted semiannually (every 120 work days). How many items need to be counted each day?
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Inventory Management - Problems Dr. R. Jagadeesh

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