1.The Peace Care Hospital uses 3500 boxes of sterile bandages each month. The annual carrying cost is $ 2·90 per box per year. The ordering cost is $25 each time an order is placed, regardless of the order quantity. The hospital operates 365 days per year. Peace Care Hospital would like to use the EOQ model.
i.How many boxes of sterile bandages should be ordered each time an order is placed using the EOQ ?
ii.How many orders per year are expected using the EOQ order ?
iii.Suppose that currently the manager uses an order size of 900 boxes. What additional cost is the hospital incurring by using this current order size rather than the EOQ ? [ Hint : compare the cost of using the EOQ amount versus the cost incurred using an order size of 900 box
2.A firm is faced with the attractive situation in which it can obtain immediate delivery of an item it stocks for retail sale. The firm has therefore not bothered to order the item in any systematic way. However, recently profits have been squeezed due to increasing competitive pressures, and the firm has retained a management consultant to study its inventory management. The consultant has determined that the various costs associated with making an order for the item stocked are approximately $70 per order. She has also determined that the costs of carrying the item in inventory amount to approximately $27 per unit per year (primarily direct storage costs and forgone profit on investment in inventory). Demand for the item is reasonably constant over time, and the forecast is for 16,500 units per year. When an order is placed for the item, the entire order is immediately delivered to the firm by the supplier. The firm operates 6 days a week plus a few Sundays or approximately 320 days per year. Determine the following:
(a) Optimal order quantity per order,
(b) Total annual inventory costs,
(c) Optimal number of orders to place per year,
(d) Number of operating days between orders, based on the optimal ordering.