Problem set 5
Part 1 of 3 – Part 1 
Lila Battle has determined that the annual demand for number 6 screws is 100,000 screws. Lila, who works in her brother’s hardware store, is in charge of purchasing. She estimates that it costs $10 every time an order is placed. This cost includes her wages, the cost of the forms used in placing the order, and so on. Furthermore, she estimates that the cost of carrying one screw in inventory for a year is onehalf of 1 cent. Assume that the demand is constant throughout the year.
To minimize total inventory cost, Lila should order
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Based on the calculation in Question 1, Lila needs to make
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Based on the calculation in Question 1, Lila’s average inventory is
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Shoe Shine is a local retail shoe store located on the north side of Centerville. Annual demand for a popular sandal is 500 pairs, and John Dirk, the owner of Shoe Shine, has been in the habit of ordering 100 pairs at a time. John estimates that the ordering cost is $10 per order. The cost of the sandal is $5 per pair.
Ross White’s machine shop uses 2,500 brackets during the course of a year, and this usage is relatively constant throughout the year. These brackets are purchased from a supplier 100 miles away for $15 each, and the lead time is 2 days. The holding cost per bracket per year is $1.50 (or 10% of the unit cost) and the ordering cost per order is $18.75. There are 250 working days per year. Now, Ross White wants to reconsider his decision of buying the brackets and is considering making the brackets inhouse. He has determined that setup costs would be $25 in machinist time and lost production time, and 50 brackets could be produced in a day once the machine has been set up. Ross estimates that the cost (including labor time and materials) of producing one bracket would be $14.80. The holding cost would be 10% of this cost.
