Low Nail Company - Week Three: Inventory Analysis Assignment

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Week Three: Inventory Analysis

LOW NAIL COMPANY Answer all the questions to the Low Nail Company Case. Questions can be found on page 362 in the custom textbook and page 148 of the original textbook.

Use Excel & EOQ Formulas in solving all problems. Place the required Excel formula in all cells highlighted in yellow to show correct answer. Format cells appropriately.

Question 1: Using the EOQ formula and the information contained in the Low Nail Case Study, how many kegs of nails should Low order at one time? a.

2000

= Annual use in units

b.

60

= Cost of placing an order

c.

1

= Annual carrying cost per item per year

d.

1

= Additional carrying cost per item per year for half empty warehouse space

Note: Warehouse space rented by Low is on-average only half full. e.

2

= Total annual carrying cost per item per year (including physical inventory and empty warehouse space)

f.

346

= kegs per order = EOQ

Discussion on Question 1: In order to calculate the EOQ, = SQRT((2*B12*B14/(B16)) which comes out to 346 kegs per order

Question 2:

The new EOQ, based on the following information is:

Orders per Year

Order Size

1 2 3 4

2000 1000 667 500

Processing Costs ($) $0.00 $0.00 $90.00 $120.00

Warehousing Costs ($) $2,000.00 $1,000.00 $666.67 $500.00

Sum of Processing and Warehousing Costs ($) $2,000.00 $1,000.00 $756.67 $620.00

5 6 7 8 9

400 333 286 250 222

$300.00 $360.00 $420.00 $480.00 $540.00

$400.00 $333.33 $285.71 $250.00 $222.22

$700.00 $693.33 $705.71 $730.00 $762.22

Discussion of Question 2:

For ordere size, you must split the 2000 by the orders per year. The cost for kegs above 750 is free, however, be

Question 3:

The new EOQ, based on the following information is:

Orders Per Year

Order Size

1 2 3 4 5

2000 1000 667 500 400

Processing Costs ($) $60.00 $120.00 $180.00 $240.00 $300.00

Warehousing Costs ($) $2,000.00 $1,000.00 $666.67 $500.00 $400.00

Sum of Processing and Warehousing Costs ($) $2,060.00 $1,120.00 $846.67 $740.00 $700.00

Discussion on Question 3:

Order size is calculated same as above. However, we keep the original processing costs.

Question 4:

The new EOQ, based on the following information is:

Orders Per Year

Order Size

1 2 3 4 5 6 7

2000 1000 667 500 400 333 286

Processing Costs ($) $0.00 $0.00 $90.00 $120.00 $300.00 $360.00 $420.00

Warehousing Costs ($) $2,000.00 $1,000.00 $666.67 $500.00 $400.00 $333.33 $285.71

Sum of Processing and Warehousing Costs ($) $2,000.00 $1,000.00 $756.67 $620.00 $700.00 $693.33 $705.71

Discussion on Question 4:

Order size is calculated the same. Processing costs get a discount of order above 750 units are free, but below t

Question 5:

The new EOQ, based on the following information is:

Orders Per Year

Order Size

1 2 3 4 5 6 7 8 9 10 11 12 13 14

2000 1000 667 500 400 333 286 250 222 200 182 167 154 143

Processing Costs ($)

$60.00 $120 $180 $240 $300 $360 $420 $480 $540 $600 $660 $720 $780 $840

Warehousing Costs ($)

Interest Costs ($)

$2,000 $1,000 $667 $500 $400 $333 $286 $250 $222 $200 $182 $167 $154 $143

$600 $300 $200 $150 $120 $100 $86 $75 $67 $60 $55 $50 $46 $43

Discussion on Question 5:

Question 6:

Orders Per Year

The new EOQ, based on the following information is:

Order Size

Processing Costs ($)

Warehousing Costs ($)

Interest Costs ($)

1 2 3 4 5 6 7 8 9

2000 1000 667 500 400 333 286 250 222

Discussion on Question 6:

$60.00 $120 $180 $240 $300 $360 $420 $480 $540

$2,000 $1,000 $667 $500 $400 $333 $286 $250 $222

$600 $300 $200 $150 $120 $100 $86 $75 $67

Helpful formulas from the textbook:

n be found on page 362 in the

Excel formula in all cells

he Low Nail Case Study, how

Correction 1: D = annual demand in units.

Correction 2: IC should be listed as (IC) -- both variables are in the den Note: C is often referred to as the carrying cost rate Hint: (IC) = Annual carrying cost per item per year

rehouse space

cal inventory and empty warehouse space)

out to 346 kegs per order

500

t for kegs above 750 is free, however, between 249-749 is half the cost of $60.

400

processing costs.

500

der above 750 units are free, but below that is half the price of $60

286

Sum of Processing, Warehousing, and Interest Costs ($) $2,660 $1,420 $1,047 $890 $820 $793 $791 $805 $829 $860 $896 $937 $980 $1,026

286

Sum of Processing, Warehousing, and Interest Costs ($)

$2,660 $1,420 $1,047 $890 $820 $793 $791 $805 $829

oth variables are in the denominator.