Problem 16-15

The owner of a large machine shop has just finished its financial analysis from the prior fiscal year.
Following is an excerpt from the final report:

Net revenue
Cost of goods sold
Value of production materials on hand
Value of work-in-process inventory
Value of finished goods on hand

a.

338,000
299,000
42,500
71,000
29,500

Compute the inventory turnover ratio (ITR). (Round your answer to 1 decimal place.)
Inventory turnover ratio

2.1 times per year

b. Compute the weeks of supply (WS). (Do not round intermediate calculations. Round your
answer to 1 decimal place.)
Weeks of supply

24.9 weeks of supply

Problem 16-16
The McDonalds fast-food restaurant on campus sells an average of 10,800 quarter-pound hamburgers each
week. Hamburger patties are resupplied twice a week, and on average the store has 685 pounds of hamburger in
stock. Assume that the hamburger patties cost $2 a pound.
a.

What is the inventory turnover for the hamburger patties? (Round your answer to 2 decimal places.)
Inventory turnover

204.96 per yea

b. On average, how many days of supply are on hand? (Do not round intermediate calculations. Round your ans
places.)
Average days of supply

1.78

Problem 16-12
Your company assembles five different models of a motor scooter that is sold in specialty stores in
the United States. The company uses the same engine for all five models. You have been given the
assignment of choosing a supplier for these engines for the coming year. Due to the size of your
warehouse and other administrative restrictions, you must order the engines in lot sizes of 1,200
each. Because of the unique characteristics of the engine, special tooling is needed during the
manufacturing process for which you agree to reimburse the supplier. Your assistant has obtained
quotes from two reliable engine suppliers and you need to decide which to use. The following data
have been collected:

Requirements (annual forecast)

Weight per engine

14,400 units
25 pounds

Order processing cost

$145 per order

Inventory carry cost

20 percent of the average value of inventory per year

Note: Assume that half of lot size is in inventory on average (1,200/2 = 600 units).
Two qualified suppliers have submitted the following quotations:
SUPPLIER 1
UNIT PRICE

ORDER QUANTITY
1 to 1,499 units/order

565

1,500 to 2,999 units/order

3,000 + units/order

SUPPLIER 2
UNIT PRICE
558

551
550

Tooling costs

31,620

Distance

115 miles

558
548
29,300

100 miles

Your assistant has obtained the following freight rates from your carrier:
Truckload (45,000 lbs. each load):
Less-than-truckload:

$0.80 per ton-mile

$1.20 per ton-mile

Note: Per ton-mile = 2,000 lbs. per mile.

a-1.

Calculate the total cost for each supplier. (Round your answers to the nearest whole number.)
Supplier 1

Total cost

Supplier 2

$ 8169690

$ 8066300

b-1. If you could move the lot size up to ship in truckload quantities, calculate the total cost for each
supplier. (Do not round intermediate calculations. Round "Required lot size for truckload"
andfinal answers to the nearest whole number.)
Supplier 1
Total cost

Supplier 2

7968090

Problem 18-4
Here are the data for the past 21 months for actual sales of a particular product:
January
February
March
April
May

LAST YEAR
320
440
445
465
415

THIS YEAR
270
395
375
405
430

8066300

Supp

June
July
August
September
October
November
December

430
405
315
345
495
550
515

355
385
305
390

Develop a forecast for the fourth quarter using a three-quarter, weighted moving average. Weight the most recent qua
most recent 0.25, and the third 0.25. Do the problem using quarters, as opposed to forecasting separate months. (Rou
decimal places.)
Forecast for the fourth quarter

1097.5

Problem 18-7
The following table contains the demand from the last 10 months:
MONTH
1
2
3
4
5
6
7
8
9
10

ACTUAL DEMAND
28
30
29
40
43
42
43
45
44
47

a. Calculate the single exponential smoothing forecast for these data using an of 0.20 and an initial forecast (F
answers to 2 decimal places.)
Month
1
2
3
4
5
6
7
8
9
10

Exponential
Smoothing

28.00
28.00
28.40
28.52
30.82
33.25
35.00
36.60
38.28
39.43

b. Calculate the exponential smoothing with trend forecast for these data using an of 0.20,
a of 0.30, an initial trend forecast (T1) of 1.00, and an initial exponentially smoothed
forecast (F1) of 27. (Round your answers to 2 decimal places.)
Month

FITt

28.00
29.00
29.74
30.23
30.74
31.57
32.72
34.18
35.91
37.62

1
2
3
4
5
6
7
8
9
10

c-1. Calculate the mean absolute deviation (MAD) for the last nine months of forecasts. (Round your
answers to 2 decimal places.)
MAD
Single exponential smoothing forecast
Exponential smoothing with trend forecast

6.47
1.42

Problem 18-10
The number of cases of merlot wine sold by the Connor Owen winery in an eight-year period is as follows:
YEAR
2005
2006
2007
2008
2009
2010
2011
2012

CASES OF
MERLOT WINE
285
371
413
471
372
515
425
391

Using an exponential smoothing model with an alpha value of 0.40, estimate the smoothed value
calculated as of the end of 2012. Use the average demand for 2005 through 2007 as your initial
forecast for 2008, and then smooth the forecast forward to 2012. (Round your intermediate
calculations and final answer to the nearest whole number.)
Forecast for 2012

434

Problem 18-15
Historical demand for a product is
January
February
March
April
May
June

DEMAND
15
14
18
15
19
18

a. Using a weighted moving average with weights of 0.40 (June), 0.20 (May), and 0.40 (April), find the July
forecast. (Round your answer to 1 decimal place.)
July forecast

17

b. Using a simple three-month moving average, find the July forecast. (Round your answer to 1 decimal
place.)
July forecast

17.3

c. Using single exponential smoothing with = 0.40 and a June forecast = 16, find the July forecast.(Round
your answer to 1 decimal place.)
July forecast

16.8

d. Using simple linear regression analysis, calculate the regression equation for the preceding demand
data. (Do not round intermediate calculations. Round your intercept value to 1 decimal place and
slope value to 2 decimal places.)
Y = 13.80 + 0.7714 t

e Using the regression equation in d, calculate the forecast for July. (Do not round intermediate calculations. Round
. decimal place.)
19.20

Problem 18-22
Your manager is trying to determine what forecasting method to use. Based upon the following historical
data, calculate the following forecast and specify what procedure you would utilize.
MONTH
1
2
3
4
5
6
7
8
9
10
11
12

ACTUAL
DEMAND
63
63
67
68
75
72
71
73
73
78
85
85

a. Calculate the simple three-month moving average forecast for periods 412. (Round your
answers to 3 decimal places.)
Month
4
5
6

Three-Month Moving Average

64.333
66.000
70.000

7
8
9
10
11
12

71.667
72.667
72.000
72.333
74.667
78.667

b. Calculate the weighted three-month moving average for periods 412 using weights of 0.60 (for the
period t1); 0.30 (for the period t2), and 0.10 (for the period t3). (Do not round intermediate
calculations. Round your answers to 1 decimal place.)
Month
4
5
6
7
8
9
10
11
12

Three-Month Weighted Moving

Average

65.4
67.2
72.1
72.5
71.7
72.3
72.8
76
81.7

c. Calculate the single exponential smoothing forecast for periods 212 using
an initial forecast (F1) of 67 and an of 0.30. (Do not round intermediate
calculations. Round your answers to 3 decimal places.)
Month
2
3
4
5
6
7
8
9
10
11
12

Single Exponential Smoothing

Forecast

65.800
64.960
65.572
66.300
68.910
69.837
70.186
71.030
71.621
73.535
76.974

d. Calculate the exponential smoothing with trend component forecast for periods 2
12 using an initial trend forecast (T1) of 1.90, an initial exponential smoothing
forecast (F1) of 66, an of 0.30, and a of 0.20. (Do not round intermediate
calculations. Round your answers to 3 decimal places.)
Month
2

Exponential Smoothing with

Trend

66.40

3
4
5
6
7
8

65.84
66.72
67.71
70.94
72.37
72.99

74.02

10

74.68
76.84
80.94

11
12

e-1. Calculate the mean absolute deviation (MAD) for the forecasts made by each technique in periods
412. (Do not round intermediate calculations. Round your answers to 3 decimal places.)
Mean Absolute
Deviation
Three-month moving average 4.333
Three-month weighted moving average 3.500
Single exponential smoothing forecast 5.115
Exponential smoothing with trend 3.062

Problem 19-7
Develop a production plan and calculate the annual cost for a firm whose demand forecast is fall,
9,700; winter, 8,000; spring, 7,000; summer, 11,700. Inventory at the beginning of fall is 485
units. At the beginning of fall you currently have 35 workers, but you plan to hire temporary
workers at the beginning of summer and lay them off at the end of summer. In addition, you have
negotiated with the union an option to use the regular workforce on overtime during winter or
spring only if overtime is necessary to prevent stockouts at the end of those quarters. Overtime
is not available during the fall. Relevant costs are hiring, $80 for each temp; layoff, $160 for each
worker laid off; inventory holding, $5 per unit-quarter; backorder, $10 per unit; straight time, $5
per hour; overtime, $8 per hour. Assume that the productivity is 0.5 unit per worker hour, with
eight hours per day and 60 days per season. In each quarter, produce to the full output of your
regular workforce, even if that results in excess production. In Winter and Spring, use overtime
only if needed to meet the production required in that quarter. Do not use overtime to build
excess inventory in prior seasons expressly for the purpose of reducing the number of temp
workers in Summer. (Leave no cells blank - be certain to enter "0" wherever required.
Negative values should be indicated by a minus sign. Round up "Number of temp
workers, Workers hired and Workers laid off" to the next whole number and all other
answers to the nearest whole number.)

Problem 19-12
PRODUCT

APRIL

MAY

JUNE

890

690

890

690

790

990

790

590

790

Because the products deteriorate rapidly, there is a high loss in quality and, consequently, a
high carrying cost when a product is made and carried in inventory to meet future demand.
Each hours production carried into future months costs $3 per production hour for A, $4 for
Model B, and $5 for Model C.
Production can take place either during regular working hours or during overtime. Regular
time is paid at $4 when working on A, $5 for B, and $6 for C. The overtime premium is 50
percent of the regular time cost per hour.
The number of production hours available for regular time and overtime is

Regular time
Overtime

APRIL

MAY

JUNE

1,590

1,450

1,890

790

740

1,120

Calculate the objective value using Excel Solver. (Do not round intermediate calculations.)
Objective value

67593

July forecast

1645

Alan Industries is expanding its product line to include three new products: A, B, and C. These are to be produced on th
same production equipment, and the objective is to meet the demands for the three products using overtime where
necessary. The demand forecast for the next four months, in hours required to make each product is

Problem 19-15
Helter Industries, a company that produces a line of women's bathing suits, hires temporaries to help produce its
summer product demand. For the current four-month rolling schedule, there are three temps on staff and 12 full-time
employees. The temps can be hired when needed and can be used as needed, whereas the full-time employees must
be paid whether they are needed or not. Each full-time employee can produce 204 suits, while each part-time
employee can produce 164 suits per month.
Demand for bathing suits for the next four months is as follows:
MAY
3,295

JUNE

JULY

2,895

AUGUST
3,095

3,195

Beginning inventory in May is 405 complete (a complete two-piece includes both top and bottom) bathing suits. Ba
suits cost $40 to produce and carrying cost is 24 percent per year.

Develop an aggregate plan that uses the 12 full-time employees each month and a minimum number of temporar
employees. Assume that all employees will produce at their full potential each month. Calculate the inventory carrying
cost associated with your plan using planned end of month levels. (Round "Inventory cost" to 2 decimal places.)
May
Forecast

June
3,295

July
2,895

3,195

August
3,095

Beginning inventory
Production required
Regular workforce
Regular production
Temp workforce
Temp production
Total production
Ending inventory
Inventory cost

405
2890
12
2448
3
492
2940
50
$ 480

50
2845
12
2448

95
3100
12
2448
4
656
3104
4
$ 38.4

492
2940
95
$ 912

$1
$1555.2

Problem 20-6
Solve the newsvendor problem.

Probability
Value

0.16
1

0.09
2

0.16
3

0.22
4

0.26
5

Purchase cost c
Selling price p
Salvage value v

0.11
6

=
=
=

16
50
11

What is the optimal order quantity?

Optimal order quantity

Problem 20-10
You are a newsvendor selling San Pedro Times every morning. Before you get to work, you
go to the printer and buy the days paper for $0.25 a copy. You sell a copy of San Pedro
Times for $1.30. Daily demand is distributed normally with mean = 260 and standard
deviation = 46. At the end of each morning, any leftover copies are worthless and they go to
a recycle bin.
a. How many copies of San Pedro Times should you buy each morning? (Use Excel's
NORMSINV() function to find the correct critical value for the given -level. Round your zvalue to 2 decimal places and final answer to the nearest whole number.)
Optimal order quantity

300

b. Based on a, what is the probability that you will run out of stock? (Round your answer to the nearest
whole number.)
Probability

Problem 20-13

19.22% %

Dunstreet's Department Store would like to develop an inventory ordering policy of a 99 percent
probability of not stocking out. To illustrate your recommended procedure, use as an example the
ordering policy for white percale sheets.
Demand for white percale sheets is 4,500 per year. The store is open 365 days per year. Every
three weeks (21 days) inventory is counted and a new order is placed. It takes 6 days for the sheets
to be delivered. Standard deviation of demand for the sheets is four per day. There are currently
200 sheets on hand.
How many sheets should you order? (Use Excel's NORMSINV() function to find the
correct critical value for the given -level. Do not round intermediate calculations.
Round "z" value to 2 decimal places and final answer to the nearest whole number.)
Number of sheets

155.77

Problem 20-21
Item X is a standard item stocked in a company's inventory of component parts. Each year the firm, on a
random basis, uses about 1,700 of item X, which costs $25 each. Storage costs, which include insurance and
cost of capital, amount to $4 per unit of average inventory. Every time an order is placed for more item X, it
costs $22.
a.

Whenever item X is ordered, what should the order size be? (Round your answer to the nearest whole number
Order size

137

b. What is the annual cost for ordering item X? (Round your answer to 2 decimal places.)
Ordering cost
c.

$ 286.00

What is the annual cost for storing item X? (Round your places.)
Holding cost

$ 274.00

Problem 20-29
A distributor of large appliances needs to determine the order quantities and reorder points for
the various products it carries. The following data refer to a specific refrigerator in its product
line:
Cost to place an order
Holding cost
Cost of refrigerator
Annual demand
Standard deviation during lead time
Lead time

$ 145
35 percent of product cost per year
$ 480 each
520 refrigerators
36 refrigerators
6 days

Consider an even daily demand and a 365-day year.

a.

What is the economic order quantity? (Round your answer to the nearest whole number.)
Economic order quantity

30 refrigerators

If the distributor wants a 90 percent service probability, what reorder point, R, should be
used? (Use Excel's NORMSINV() function to find the correct critical value for the given level. Do not round intermediate calculations. Round "z" value to 2 decimal places and
final answer to the nearest whole number.)
Reorder point
55 refrigerators

DAT, Inc., produces digital audiotapes to be used in the consumer audio division. DAT lacks
sufficient personnel in its inventory supply section to closely control each item stocked, so it has
asked you to determine an ABC classification. Here is a sample from the inventory records:
ITEM
1
2
3
4
5
6
7
8
9
10

AVERAGE
MONTHLY DEMAND
500
2,700
200
4,500
1,100
300
1,800
1,300
2,300
1,900

PRICE PER UNIT

$ 7.00
9.00
9.00
29.00
5.00
7.00
18.00
4.00
15.00
16.00

Develop an ABC classification for these 10 items.

Item
1
2
3
4
5
6
7
8
9
10

Monthly Usage ($)

3500
24300
1800
130500
5500
2100
32400
5200
34500
30400

Class

B
B
C
A
B
C
A
B
A
A