Inventory Management

Q1) Klassen Toy Company, Inc., assembles two parts (parts 1 and 2 ): Part 1 is first processed at workstation A for 15 minutes per unit and then processed at workstation B for 10 minutes per unit. Part 2 is simultaneously processed at work-station C for 20 minutes per unit. Work stations B and C feed the parts to an assembler at workstation D, where the two parts are assembled. The time at workstation D is 15 minutes.

  1. a) What is the bottleneck of this process?
  2. b) What is the hourly capacity of the process?
  3. c) What is the cycle time?



Q2) Markland Manufacturing intends to increase capacity by overcoming a bottleneck operation by adding new equipment. Two vendors have presented proposals. The fixed costs for proposal A are $50,000, and for proposal B, $70,000. The variable cost for A is $12.00, and for B, $10.00. The revenue generated by each unit is $20.00.

  1. a) What is the break-even point in dollars for proposal A if you add $10,000 installation to the fixed cost?
  2. b) What is the break-even point in dollars for proposal B if you add $10,000 installation to the fixed cost?


Q3) Boreki Enterprises has the following 10 items in inventory. Theodore Boreki asks you, a recent OM graduate, to divide these items into ABC classifications.


Indicate the items which will be classified in each category and find the percentage of value for each classification.


Q4) Joe Henry’s machine shop uses 2,500 brackets during the course of a year. These brackets are purchased from a supplier 90 miles away. The following information is known about the brackets:

  1. What is the EOQ?
  2. how many orders would be made each year?
  3. What would be the annual order(set-up) cost?
  4. What is the time between orders?
  5. What is the reorder point (ROP)?


Q5) Bell Computers purchases integrated chips at $350 per chip. The holding cost is $35 per unit per year, the ordering cost is $120 per order, and sales are steady, at 400 per month. The company’s supplier, Rich Blue Chip Manufacturing, Inc., decides to offer price concessions in order to attract larger orders. The price structure is shown below.

What is the optimal order quantity and the minimum annual cost for Bell Computers to order, purchase, and hold these integrated chips?



Q6) Hip Replacements, Inc., has a master production schedule for its newest model, as shown on the table below, a setup cost of $50, a holding cost per week of $2, beginning inventory of 0, and lead time of 1 week. What is the total costs of using EOQ?



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