Reference no: EM132956835

A large law firm uses an average of 10 packages of copier paper a day. Each package contains 500 sheets. The firm operates 260 days a year. Storage and handling costs for the paper are $1 per year per package, and it costs approximately $10 to order and receive a shipment of papers.

a) What order quantity would minimize total annual ordering and holding cost?

b) Calculate the total annual inventory control cost using your order quantity from part a.

c) Except for rounding, are annual ordering and holding costs equal at the EOQ?

d) The office manager is currently using an order quantity of 100 packages. The partners of the firm expect the office to be managed in a cost-efficient manner. Would you recommend that the office manager use the optimal order quantity instead of 100 packages? Justify your answer.

A chemical plant produces sodium bisulfate in 100 kg bags. Demand for this product is 20 tonnes per day. The capacity for producing this product is 50 tonnes per day. Setup cost is $400, and storage and handling costs are $200 per tonne per year. The company operates 200 days a year. (Note: 1 tonne = 1,000 kg).

a) What is the optimal number of bags per production run?

b) What would the average inventory level be for this lot size?

c) Determine the approximate length of a production run, in days.

d) About how many production runs per year would there be?

e) How much could the company save annually in inventory control cost if the setup cost could be reduced to $200 per production run and the optimal production quantity is recalculated and used?