1. Solutions to Chapter 9 Exercises
Chapter 9: Inventory Management

2. Chapter 9: Inventory Management
Exercise 1
Expense Cost Type Relevant?
Postage Order Yes
Warehouse rent Holding Usually not
PO forms Order Yes
Secretarial labor Order Usually not
Warehouse Holding Usually not
Guard Holding Usually not
Interest Holding Yes
Cost of goods Holding* Yes
Distribution Holding No
Receiving materials Order Yes
Ill-will Shortage Yes
Warehouse heat Holding Usually not
Advertising Holding* No
Expediting Shortage Yes
President’s salary Holding No
F.G. fire insurance Holding No
___________________________
* Part of cost of goods which must be held at some interest rate
Chapter 9: Inventory Management

3. Chapter 9: Inventory Management
Exercise 2
Chapter 9: Inventory Management

4. Chapter 9: Inventory Management
Exercise 3
3000 feet/month  12 = 36,000 feet/year
Chapter 9: Inventory Management

5. Chapter 9: Inventory Management
Exercise 4
Chapter 9: Inventory Management

6. Chapter 9: Inventory Management
Exercise 5
Q = max level - on hand - on order +
demand during lead time
= (15)
= 50 units
Chapter 9: Inventory Management

7. Chapter 9: Inventory Management
Exercise 6 a.
b. (31,623)(12)/1,000,000 = 0.38 month
c. 31,623/1,000,000 = year (every 11.5 days)
d. At EOQ: annual holding cost = annual ordering cost =
(1,000,000)(100)/31,623 = $
But ordering monthly: 1,000,000/12 = 83, per month.
New holding cost: 83,333.33(0.2)/2 = $
New ordering cost: 100(12) = $1200 so the holding cost would
increase $5171 and the ordering cost would decrease $ e.
Same for a doubling of the ordering cost or a halving of the
holding cost.
Chapter 9: Inventory Management