Page 276 - DCOM303_DMGT504_OPERATION_RESEARCH

Unit 13: Inventory Control

Solution: Notes
1. Reorder Level
= Maximum Consumption × Maximum Lead Time

Material X Material Y
(80 units × 6) (80 units × 4)

= 480 units = 320 units

2. Minimum Level
= (Reorder Level – Normal Consumption × Normal L.T.)
(480 units – 60 × 5) (320 units – 60 × 3)
= 180 units = 140 units
3. Maximum Level

[Reorder level + Reorder Qty. – Minimum cons. × Min. L.T.]
(480 units + 400) – (20 × 4) = (320 + 600) – (20 × 2)
= 960 units = 960 units

4. Average Level
Maximum Level + Minimum Level

=

= 570 units = 550 units

Example: Following information available in an inventory problem are:
Annual demand 2,400 units

Unit price (`) 2.40
Ordering cost (`) 4.00
Storage cost 2% p.a.

Interest rate 10% p.a.
Lead time ½ month
Calculate EOQ, reorder level and total annual inventory cost. How much does the total inventory
cost vary if the unit price is changed to ` 5?
Solution:

(a) Calculation of EOQ =

`
=
`

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