Problem Solving Activity 9&10

9.4. A florist carries an average inventory of $12,000 in cut flowers. The flowers require special storage
and are highly perishable. The florist estimates capital costs at 10%, storage costs at 25%, and risk costs
at 50%. What is the annual carrying cost?
9.6. An importer operates a small warehouse that has the following annual costs. Wages for purchasing
are $45,000, purchasing expenses are $30,000, customs and brokerage costs are $30 per order, the cost
of financing the inventory is 8%, storage costs are 7%, and the risk costs are 10%. The average inventory
is $250,000, and 6000 orders are placed in a year. What are the annual ordering and carrying costs?
9.9. Given the following data, calculate a level production plan, quarterly ending inventory, and average
quarterly inventory. If inventory carrying costs are $3 per unit per quarter, what is the annual carrying
cost? Opening and ending inventories are zero.
9.11. If the liabilities are $4,000,000 and the owners’ equity is $1,200,000, what are the assets worth?
9.15. If the annual cost of goods sold is $30,000,000 and the average inventory is $5,000,000,
A. What is the inventory turns ratio?
B. What would be the reduction in average inventory if, through better materials management,
inventory turns were increased to 10 times per year?
C. If the cost of carrying inventory is 25% of the average inventory, what is the annual savings?
9.18. Analyze the following data to produce an ABC classification based on annual dollar usage.
10.1. An SKU costing $10 is ordered in quantities of 500 units, annual demand is 5200 units, carrying
costs are 20%, and the cost of placing an order is $50. Calculate the following:
A. Average inventory.
B. Number of orders placed per year.
C. Annual inventory carrying cost.
D. Annual ordering cost.
E. Annual total cost.
10.5. An SKU has an annual demand of 10,000 units, each costing $15, ordering costs are $80 per order,
and the cost of carrying inventory is 25%. Calculate the EOQ in units and then convert to dollars.
10.8. The local fire department uses 10,000 alkaline flashlight batteries per year, which cost $4 each. The
cost of ordering batteries is estimated to be $50. The current interest rate suggested by the city council is
25%. The sales rep has recently suggested that you could get a discount of 2% for orders of 2000
batteries at a time. Should you take advantage of this special offer?
10.12. A company manufactures five sizes of screwdrivers. Ordering costs and carrying costs are not
known, but it is known that they are the same for each size. At present, each size is produced four times
per year. If the demand for each size is as follows, calculate order quantities to minimize inventories and
maintain the same total number of runs. Calculate the old and new average inventories. Is there any
change in the number of orders per year?
10.15. Given the following MRP record and an EOQ of 200 units, calculate the planned order receipts
using the economic order quantity. Next, calculate the period order quantities and the planned order
receipts. In both cases, calculate the ending inventory and the total inventory carried over the 10 weeks.
10.16. An item has a weekly demand of 240 units throughout the year. The item has a unit value of $42
and the company uses 20% of the item value for the annual inventory cost. When ordered, the setup
cost to produce an order is $600, and the production process is able to produce 500 per week and
deliver them weekly as produced. What is the economic order quantity?