Operations Management: An Integrated Approach, 5th Edition

Solved Problems

(See student companion site for Excel template.)

• Problem 1

Tacky Souvenirs sells lovely handmade tablecloths at its island store. These tablecloths cost Tacky $15 each. Customers want to buy the tablecloths at a rate of 240 per week. The company operates 52 weeks per year. Tacky, the owner, estimates his ordering cost at $50. Annual holding costs are 20 percent of the unit cost. Lead time is 2 weeks. Using the information given,

• (a) Calculate the economic order quantity.
• (b) Calculate the total annual costs using the EOQ.
• (c) Determine the reorder point.

• Before You Begin:

To calculate the economic order quantity, you use the formula

Remember that the demand information and the holding cost must be for the same time frame. That is, if you use annual demand, you must use an annual holding cost. Once you have calculated the EOQ, you calculate total annual costs with the formula

To find the reorder point, use the formula: R = dL. Remember that demand must be in the same time frame as is given for lead time. For example, if lead time is given as three weeks, then use weekly demand. If lead time is given in days, use daily demand.

• Solution

• (a) First, calculate the annual demand and the annual holding cost.

  Annual demand = (52 weeks × 240 units per week) = 12,480 ...