1. a) Total cost of the current policy
Problem 6.3
Flow unit = one dress
Flow rate R = 30 /wk
Purchase cost C = $150/unit
Fixed order cost S = $225
Carrying cost (h+r) = 30%/yr.
lead time L = 2 weeks
Q = ten weeks supply
Q = 10(30) = 300 units.
52 weeks
Annual demand = 30(52) = 1560
Number of orders/yr = R/Q = 1560/300 = 5.2
(R/Q) S = 5.2(225) = 1,170/yr.
Average inventory = Q/2 = 300/2 = 150
H = (h+r)C = .3*150 = 45
Annual holding cost = H (Q/2) = 45(150) = 6,750 /yr.
Without any computation, is this the optimal policy?
Why?
Without any computation, is EOQ larger than 300 or smaller
Why
Annual purchasing cost =
RC = 150(1560) = 234,000/yr
Total annual costs = 234, ,170+6,750 =
Total annual costs = 241,920.

2. a) Total cost of the optimal policy
Q* = EOQ =
= 125 units.
An order for 125 units two weeks before he expects to run out.
That is, whenever current inventory drops to
ROP = 30(2) = 60 units
which is the re-order point.
Total annual cost is
RC +
234, ,620 = $239,620
For all Qs (including EOQ), inventory cost is
For EOQ, we can use both the general formula, as well as

3. c) Inventory turns for current and optimal policies
Inventory turns = R/I
I is the average inventory
Average inventory = I = Q/2 with cycle stock only.
Current policy inventory turns =
R/(Q/2)= 1560/(300/2) = times per year.
Optimal policy inventory turns = 1560/(125/2) = 25
turns more than doubled
Days of inventory in the optimal policy
# of working days per yr / inventory turns