A local artisan uses supplies purchased from an overseas supplier. The owner believes the assumptions of the EOQ

model are met reasonably well. Minimization of inventory costs is her objective. Relevant data, from the files of
the craft firm, are annual demand (D) =150 units, ordering cost (S) = $42 per order, and holding cost (H) = $4 per
unit per year
a. How many should she order at one time?
b. How many times per year will she replenish her inventory of this material?
c. What will be the total annual inventory costs associated with this material?
d. If she discovered that the carrying cost had been overstated, and was in reality only $1 per unit per year,
what is the corrected value of EOQ?

Thomas’ Bike Shop stocks a high volume item that has a normally distributed demand during the reorder period. The
average daily demand is 70 units, the lead time is 4 days, and the standard deviation of demand during the reorder
period is 15.
a. How much safety stock provides a 95% service level to Thomas?
b. What should the reorder point be?(2 marks)

)

Q. The monthly sales for Telco Batteries, Inc. were as follows:

Month Sales
Jan 2010 20
Feb 21
Mar 15
Apr 14
May 15
Jun 16
Jul 17
Aug 18
Sep 21
Oct 20
Nov 21
Dec 20
Jan 2011 ?

(a) Plot the monthly sales data using excel.
(b) Forecast January 2011sales using each of the following:
(i) 3-month moving average.
(ii) 6-month weighted moving average using 0.1, 0.1, 0.1, 0.2, 0.2, and 0.3, with the heaviest weights applied
to the most recent months.
(iii) Exponential smoothing using an alfa =0.3 and 0.5. Compare forecasts with different alpha values and
identify which value of alpha is preferable and discuss why. Use January 2010 forecast of 18 to start your
calculation.

(iv) Plot the 3-month and 6-month moving average forecast and write your comments about the trends.
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