Ch. 10 Homework SHOW WORK on all 3 problems.

1. Kellam Images prints snack food bags on long rolls of plastic film. The plant operates
300 days a year. The daily production rate is 5500 bags (max), and the daily demand is 3000
bags. The cost to set up the design for printing is $350. The holding cost is estimated at $0.05
per bag.
What is the recommended production lot size?
D = 3000/day * 350
= 1050000

How many set-ups are there per year?

Set-ups = Q/p
= 1050000/5500
Total number of set-ups per year = 190.90

2. Use these assumptions of an inventory model with backorders.

D = 350 tables per year

Ch = 20% per year
C = $750 per table
Co = $75 per order
Cb = $55 per table per year
The store is open 250 days a year.

Calculate the optimal ordering quantity, max backorder quantity, and total annual cost.

Optimal ordering quantity = Q* = √2DC0/Ch

= √2 * D * C0/Ch
= √2 * 350 * 75/70
= √52500/70
= √750
= 27 units
Max backorder quantity = S* = Q* *(Ch/(Ch+Cb))
= 27 * (70/(70+55))
= 15 units

Total annual cost = [Ch*(Q*-S*)2/2Q*] + Q* + S*

= [70 * (27-15)2/2*27] + 27 + 15
= [10080/54] + 27 + 15
 = 187 + 27 + 15
Total annual cost = $229