EOQ Ken Homa
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Higher interest rates increase holding costs, lowering EOQ. Automating orders lowers setup costs, increasing EOQ. Lower warehouse costs lower holding costs, increasing EOQ. New competition may change demand assumptions. Cost reductions lower unit costs but not other factors. Longer lead times increase safety stock needs, lowering EOQ. Minimum orders impose a floor that may exceed the calculated EOQ.
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The EOQ Model
An INVENTORY is an accumulation of a commodity that will be used to satisfy some future demand.
EOQ Is such an Inventory
Single period inventory ordering
The document discusses single period inventory ordering models. It provides an example of using historical demand data to determine multiple demand scenarios and their probabilities. It then calculates the expected profit for different order quantities by weighting the profit of each scenario by its probability. The optimal order quantity is the one that maximizes expected profit. It discusses how the optimal quantity relates to average demand and the risk-reward tradeoff of choosing higher or lower order quantities.
Quantity discount
1. The document discusses quantity discount models, including calculating optimal order quantities (Q*) based on setup, holding, and product costs to determine the lowest total cost.
2. It provides examples of applying these models to determine optimal order quantities for various products given annual demand, costs, and discount price structures.
3. The optimal order quantity is the one that results in the lowest total annual cost based on comparing total costs calculated for different possible order sizes.
Multi item inventory - joint ordering
This document discusses managing cycle inventory in supply chains. It defines cycle inventory as the average inventory that builds up due to purchasing or producing goods in batches larger than customer demand. The key roles of cycle inventory are to take advantage of economies of scale and minimize total supply chain costs. While cycle inventory lowers per-unit costs, it increases inventory holding costs and delays product flow. The document examines how to determine optimal batch sizes using economic order quantity models and how aggregating orders across multiple products or customers can help lower batch sizes and cycle inventory levels.
Economic Order Quantity Models
1. EOQ models determine the optimal order quantity to minimize total inventory costs by balancing ordering and holding costs. The basic EOQ formula considers constant demand, lead time, and costs.
2. Extensions of EOQ include EPQ, which accounts for continuous production, and quantity discount models, which optimize order size to receive lower per-unit prices.
3. Planned shortage models factor backorders, where unfulfilled customer demand is recorded and met by subsequent deliveries to minimize lost sales from stockouts. Formulas balance ordering, holding, and shortage costs.
Chapter 3 : Overhead Analysis
- The document discusses key aspects of job-order costing, including tracking the flow of costs through raw materials, work in process, finished goods, and cost of goods sold accounts.
- It explains how to record transactions like purchasing raw materials, applying labor costs, applying manufacturing overhead, and transferring completed jobs to finished goods inventory.
- Journal entries are provided as examples to record these transactions and show the flow of costs through a job-order costing system.
Inventory management ppt @ bec doms
The document discusses various inventory management models and concepts. It begins with an overview of inventory types and functions. It then covers ABC analysis for classifying inventory, cycle counting to ensure accuracy, and models for determining order quantities like economic order quantity, production order quantity, and probabilistic models. The key models provide ways to determine how much and when to order inventory to minimize total costs based on factors like demand, ordering costs, and holding costs.
Chapter 5 : Relevant Costing For Decision Making
The document discusses relevant costs, opportunity costs, and sunk costs in the context of business decision making. It provides definitions and examples of each cost type. Relevant costs are those that differ between alternatives in a decision. Opportunity costs represent potential benefits given up by choosing one alternative over another. Sunk costs cannot be changed by any decision because they have already been incurred in the past. The document considers how these cost concepts apply to specific business decisions around accepting special orders, adding or dropping product lines, make-or-buy decisions, and further processing.
Recommended
The EOQ Model
An INVENTORY is an accumulation of a commodity that will be used to satisfy some future demand.
EOQ Is such an Inventory
Single period inventory ordering
The document discusses single period inventory ordering models. It provides an example of using historical demand data to determine multiple demand scenarios and their probabilities. It then calculates the expected profit for different order quantities by weighting the profit of each scenario by its probability. The optimal order quantity is the one that maximizes expected profit. It discusses how the optimal quantity relates to average demand and the risk-reward tradeoff of choosing higher or lower order quantities.
Quantity discount
1. The document discusses quantity discount models, including calculating optimal order quantities (Q*) based on setup, holding, and product costs to determine the lowest total cost.
2. It provides examples of applying these models to determine optimal order quantities for various products given annual demand, costs, and discount price structures.
3. The optimal order quantity is the one that results in the lowest total annual cost based on comparing total costs calculated for different possible order sizes.
Multi item inventory - joint ordering
This document discusses managing cycle inventory in supply chains. It defines cycle inventory as the average inventory that builds up due to purchasing or producing goods in batches larger than customer demand. The key roles of cycle inventory are to take advantage of economies of scale and minimize total supply chain costs. While cycle inventory lowers per-unit costs, it increases inventory holding costs and delays product flow. The document examines how to determine optimal batch sizes using economic order quantity models and how aggregating orders across multiple products or customers can help lower batch sizes and cycle inventory levels.
Economic Order Quantity Models
1. EOQ models determine the optimal order quantity to minimize total inventory costs by balancing ordering and holding costs. The basic EOQ formula considers constant demand, lead time, and costs.
2. Extensions of EOQ include EPQ, which accounts for continuous production, and quantity discount models, which optimize order size to receive lower per-unit prices.
3. Planned shortage models factor backorders, where unfulfilled customer demand is recorded and met by subsequent deliveries to minimize lost sales from stockouts. Formulas balance ordering, holding, and shortage costs.
Chapter 3 : Overhead Analysis
- The document discusses key aspects of job-order costing, including tracking the flow of costs through raw materials, work in process, finished goods, and cost of goods sold accounts.
- It explains how to record transactions like purchasing raw materials, applying labor costs, applying manufacturing overhead, and transferring completed jobs to finished goods inventory.
- Journal entries are provided as examples to record these transactions and show the flow of costs through a job-order costing system.
Inventory management ppt @ bec doms
The document discusses various inventory management models and concepts. It begins with an overview of inventory types and functions. It then covers ABC analysis for classifying inventory, cycle counting to ensure accuracy, and models for determining order quantities like economic order quantity, production order quantity, and probabilistic models. The key models provide ways to determine how much and when to order inventory to minimize total costs based on factors like demand, ordering costs, and holding costs.
Chapter 5 : Relevant Costing For Decision Making
The document discusses relevant costs, opportunity costs, and sunk costs in the context of business decision making. It provides definitions and examples of each cost type. Relevant costs are those that differ between alternatives in a decision. Opportunity costs represent potential benefits given up by choosing one alternative over another. Sunk costs cannot be changed by any decision because they have already been incurred in the past. The document considers how these cost concepts apply to specific business decisions around accepting special orders, adding or dropping product lines, make-or-buy decisions, and further processing.
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Bba 2204 fin mgt week 9 cost of capital
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Activity based costing & activity based management
The document discusses activity based costing (ABC) and how it addresses limitations of traditional costing methods. It explains that ABC allocates overhead costs to products based on multiple cost drivers like direct labor hours, machine hours, and number of purchase orders rather than a single driver. This provides a more accurate reflection of how overhead resources are consumed. The document provides an example to illustrate how ABC can allocate overhead costs differently than traditional methods based on a single driver.
Payback period time value of money ad internal rate ofreturn
This is my small presentation if any dout then mail me i'm try to solve your dou my mail id is:subhashrohit10693@gmail.com
Inventory management
nventory management
,
types of inventories
,
functions of inventory
,
objective of inventory control
,
effective inventory management
,
inventory counting systems
,
key inventory terms
,
economic order quantity models
,
assumptions of eoq model
,
deriving the eoq
,
economic production quantity assumptions
,
single period model
,
fixed-interval disadvantages
,
when to reorder with eoq ordering
Time Value of Money (Financial Management)
The document discusses different types of interest rates and annuities. It defines simple interest as interest paid only on the principal amount, while compound interest is interest paid on both previous interest and principal. An annuity is a series of equal payments over a period of time, with ordinary annuities having payments at the end of periods and annuity dues having payments at the beginning. The document also discusses calculating future and present values of these different financial instruments using standard formulas.
Valuation of securities
The document contains 13 problems related to valuation of securities such as stocks and bonds. Key details include calculating stock prices given dividend growth rates, required rates of return, bond yields and prices given coupon rates and maturities. The problems require using concepts like present value, dividend discount model, yield to maturity and understanding how interest rate changes affect bond prices.
4. inventory management
Here are the steps to solve this EPQ problem:
1) Demand per year = 48,000 wheels
2) Production rate per day = 800 wheels
3) Setup cost = $45
4) Carrying cost per wheel = $1
5) Number of working days per year = 240
6) Using the EPQ formula:
EPQ = √(2 * Demand * Setup cost / Carrying cost per unit)
= √(2 * 48,000 * $45 / $1)
= √432,000 = 208 wheels
7) Cycle time = EPQ / Production rate per day
= 208 / 800 = 0.26 days = 6.
Economic Order Quality Eoq
The document discusses the economic order quantity (EOQ) model, which aims to minimize total inventory costs by determining the optimal order quantity. It defines EOQ as the order quantity that balances ordering costs and carrying costs. The key assumptions of the EOQ model are constant demand, lead time, and costs. The document presents the mathematical formula for calculating EOQ and provides an example calculation. It also describes two EOQ models: the 'Q' model with fixed reorder quantities and the 'P' model with periodic reviews and orders.
Economic order quantity (eoq) model
The document defines inventory as assets held for sale, in production, or as supplies. It discusses two classes of inventory for manufacturers and traders. Inventory management aims to control ordering, storage, and stock levels. The economic order quantity model calculates the optimal order size to minimize total inventory costs, which are ordering costs and carrying costs. The formula, variables, and an example calculation are provided. Assumptions of the model and reorder point, which triggers reordering, are also explained.
Economic order quantity
1. Economic Order Quantity (EOQ) is a model that determines the optimal order quantity to minimize total inventory costs, which include ordering costs and carrying costs. It balances placing frequent small orders with less inventory against placing infrequent large orders with more inventory.
2. The basic EOQ formula is the square root of 2 times annual demand times ordering cost divided by annual carrying cost. There are variations that incorporate factors like production rates, backorders, quantity discounts.
3. To use EOQ, calculate costs of ordering and carrying inventory, inputs like demand and costs, then apply the formula to determine the optimal order quantity. Graphing the costs can help visualize the minimum total cost point.
Case studies using Demand and Supply Concept
This is a case study. Case is :
As one example of demand and supply analysis, let us assume we have a product with the situation shown in the graph below.
The price is Rs.100 per unit.Now the government has imposed 5% tax to the seller which increased the cost of production. Please explain following with the support of graph:
Do the cost of production affects Demand or Supply
Will there be a shift or movement along supply
Will the cost of production will make the good less profitable
In order to make the same profit as before application of tax, how much price the seller should increase presuming that the (i) demand of the product is totally inelastic and (ii) demand of the product is perfectly elastic
What are the factors which affects the demand and supply of any product
inventory-management
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and/or publication of this e-mail message,contents or ts attachment(s) other than by its intended recipient(s) is strictly prohibited. Any opinions expressed in this email are those of the individual and not necessarily of the organization. Before opening attachment(s), please scan for viruses."
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"This e-Mail may contain proprietary and confidential information and is sentfor the intended recipient(s) only. If, by an addressing or transmission error,this mail has been misdirected to you, you are requested to delete this mailimmediately. You are also hereby notified that any use, any form of reproduction, dissemination, copying, disclosure, modification, distribution
and/or publication of this e-mail message,contents or ts attachment(s) other than by its intended recipient(s) is strictly prohibited. Any opinions expressed in this email are those of the individual and not necessarily of the organization. Before opening attachment(s), please scan for viruses."
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Safety stocks final
This document discusses safety stock, which is inventory kept on hand to reduce the risk of temporary shortages due to variations in demand or delays in supply. It provides three key points:
1) Safety stock helps absorb variability in customer demand forecasts and lead times to improve customer service levels and prevent stockouts.
2) The right level of safety stock is important - too much wastes money in holding costs but too little can lead to lost sales from stockouts.
3) Safety stock is calculated based on the expected demand during the lead time and the variability or uncertainty in demand and lead times, using methods like percentage of lead time demand or number of days supply.
Time value of money
The document discusses the concept of time value of money, which is the principle that money received today is worth more than the same amount in the future due to its potential to earn interest. It defines key terms like present value and future value and provides formulas to calculate them. An example calculation demonstrates that receiving $10,000 today is preferable to receiving the same amount in 3 years, since the present value of $10,000 in 3 years at a 10% interest rate is $7,513.10. Understanding time value of money is important for financial decision making regarding investments, loans, savings, and more.
Formulation of lp problems
The travel agent is planning a charter trip with three tour package types (Deluxe, Standard, Economy) that differ in flight seating/service, accommodations, meals, and tours. The agent must determine the number of each package type to offer to maximize total profit, subject to constraints on minimum/maximum percentages of each type and maximum Deluxe packages per aircraft. The objective is to maximize total profit calculated as the sum of per-package profits multiplied by the number of packages, minus the fixed aircraft cost.
EOQ learning and calculation
The document discusses the economic order quantity (EOQ) model, which aims to determine the optimal lot size that minimizes total annual inventory holding and ordering costs. It provides the assumptions of the EOQ model and guidelines for when to use, modify, or not use the EOQ. It also gives an example calculation of the EOQ, total costs, and time between orders for a bird feeder item carried by a museum gift shop. The optimal lot size, or EOQ, balances annual holding and ordering costs and results in lower total annual inventory costs compared to the shop's current large lot size policy.
Cost accounting
This document provides information on single or output costing including its meaning, utility, costing procedure, elements of cost, components of total cost, cost sheet format and examples. Single or output costing is used when production is uniform, continuous and units produced are identical. It involves determining prime cost, factory cost, total cost and cost per unit. A cost sheet systematically presents various cost elements and is useful
Chapter 11 replacement & retention decisions
This document discusses replacement studies and key concepts:
1. A replacement study determines whether to replace an existing asset (defender) or keep it by comparing the annual worth (AW) of the defender to potential replacement assets (challengers).
2. The economic service life is the number of years an asset can be kept until its AW is lowest.
3. A replacement study either considers an unlimited time horizon or a specified study period. Over unlimited time, the defender is kept until its economic service life and then replaced. Within a specified period, all combinations are considered.
4. The replacement value is the defender's market value that equalizes its AW with a challenger, helping determine if the challenger
9. benefit cost analysis
This document provides examples and explanations for conducting benefit-cost analysis to evaluate engineering projects and alternatives. It defines the key steps and techniques in benefit-cost analysis including identifying project benefits and costs, quantifying them, discounting cash flows, and calculating the benefit-cost ratio. Examples are provided to demonstrate computing benefit-cost ratios, incremental analysis, and selecting the alternative with the highest ratio or most desirable increment above 1 to indicate project acceptance.
ECONOMIC ORDER QTY
This document discusses the economic order quantity (EOQ) model, which aims to minimize total inventory costs by balancing order processing costs and inventory holding costs. It provides the EOQ formula and assumptions, including known constant demand and lead times. An example is shown for a company ordering coffee makers with annual demand of 1000 units. The optimal order quantity is calculated as 80 coffee makers with an expected reorder point of 14 units. Factors that could impact the EOQ are also listed.
Eoq model
This document discusses the economic order quantity (EOQ) model. The EOQ model determines the optimal order quantity that minimizes total inventory costs by balancing order processing costs and inventory holding costs. It assumes known demand, lead times, and costs. The formula for economic order quantity is derived and explained. An example application to a coffee maker order at SaveMart is provided to illustrate calculating optimal order quantity and reorder point using EOQ equations. Factors that could impact the EOQ are also listed.
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The document discusses the time value of money concept. It explains that money available now is worth more than the same amount in the future due to potential earning capacity. Factors like principal, interest rate, number of periods, and compounding vs. discounting techniques affect time value of money calculations. Reasons for the time value of money include risk, inflation, consumption preferences, and investment opportunities. The importance and techniques of time value of money are also summarized.
Bba 2204 fin mgt week 9 cost of capital
This document provides an overview and learning objectives for a lesson on cost of capital. It discusses the different sources of capital available to firms, including long-term debt, preferred stock, and common stock. It provides formulas for calculating the costs of these different sources. Specifically, it covers how to calculate the after-tax cost of debt, the cost of preferred stock, and the cost of common stock using either a constant growth valuation model or the capital asset pricing model (CAPM). It also discusses how to calculate the weighted average cost of capital (WACC), which weights the costs of each source of capital by the firm's target capital structure.
Activity based costing & activity based management
The document discusses activity based costing (ABC) and how it addresses limitations of traditional costing methods. It explains that ABC allocates overhead costs to products based on multiple cost drivers like direct labor hours, machine hours, and number of purchase orders rather than a single driver. This provides a more accurate reflection of how overhead resources are consumed. The document provides an example to illustrate how ABC can allocate overhead costs differently than traditional methods based on a single driver.
Payback period time value of money ad internal rate ofreturn
This is my small presentation if any dout then mail me i'm try to solve your dou my mail id is:subhashrohit10693@gmail.com
Inventory management
nventory management
,
types of inventories
,
functions of inventory
,
objective of inventory control
,
effective inventory management
,
inventory counting systems
,
key inventory terms
,
economic order quantity models
,
assumptions of eoq model
,
deriving the eoq
,
economic production quantity assumptions
,
single period model
,
fixed-interval disadvantages
,
when to reorder with eoq ordering
Time Value of Money (Financial Management)
The document discusses different types of interest rates and annuities. It defines simple interest as interest paid only on the principal amount, while compound interest is interest paid on both previous interest and principal. An annuity is a series of equal payments over a period of time, with ordinary annuities having payments at the end of periods and annuity dues having payments at the beginning. The document also discusses calculating future and present values of these different financial instruments using standard formulas.
Valuation of securities
The document contains 13 problems related to valuation of securities such as stocks and bonds. Key details include calculating stock prices given dividend growth rates, required rates of return, bond yields and prices given coupon rates and maturities. The problems require using concepts like present value, dividend discount model, yield to maturity and understanding how interest rate changes affect bond prices.
4. inventory management
Here are the steps to solve this EPQ problem:
1) Demand per year = 48,000 wheels
2) Production rate per day = 800 wheels
3) Setup cost = $45
4) Carrying cost per wheel = $1
5) Number of working days per year = 240
6) Using the EPQ formula:
EPQ = √(2 * Demand * Setup cost / Carrying cost per unit)
= √(2 * 48,000 * $45 / $1)
= √432,000 = 208 wheels
7) Cycle time = EPQ / Production rate per day
= 208 / 800 = 0.26 days = 6.
Economic Order Quality Eoq
The document discusses the economic order quantity (EOQ) model, which aims to minimize total inventory costs by determining the optimal order quantity. It defines EOQ as the order quantity that balances ordering costs and carrying costs. The key assumptions of the EOQ model are constant demand, lead time, and costs. The document presents the mathematical formula for calculating EOQ and provides an example calculation. It also describes two EOQ models: the 'Q' model with fixed reorder quantities and the 'P' model with periodic reviews and orders.
Economic order quantity (eoq) model
The document defines inventory as assets held for sale, in production, or as supplies. It discusses two classes of inventory for manufacturers and traders. Inventory management aims to control ordering, storage, and stock levels. The economic order quantity model calculates the optimal order size to minimize total inventory costs, which are ordering costs and carrying costs. The formula, variables, and an example calculation are provided. Assumptions of the model and reorder point, which triggers reordering, are also explained.
Economic order quantity
1. Economic Order Quantity (EOQ) is a model that determines the optimal order quantity to minimize total inventory costs, which include ordering costs and carrying costs. It balances placing frequent small orders with less inventory against placing infrequent large orders with more inventory.
2. The basic EOQ formula is the square root of 2 times annual demand times ordering cost divided by annual carrying cost. There are variations that incorporate factors like production rates, backorders, quantity discounts.
3. To use EOQ, calculate costs of ordering and carrying inventory, inputs like demand and costs, then apply the formula to determine the optimal order quantity. Graphing the costs can help visualize the minimum total cost point.
Case studies using Demand and Supply Concept
This is a case study. Case is :
As one example of demand and supply analysis, let us assume we have a product with the situation shown in the graph below.
The price is Rs.100 per unit.Now the government has imposed 5% tax to the seller which increased the cost of production. Please explain following with the support of graph:
Do the cost of production affects Demand or Supply
Will there be a shift or movement along supply
Will the cost of production will make the good less profitable
In order to make the same profit as before application of tax, how much price the seller should increase presuming that the (i) demand of the product is totally inelastic and (ii) demand of the product is perfectly elastic
What are the factors which affects the demand and supply of any product
inventory-management
********************************************************************************************************************************************************
"This e-Mail may contain proprietary and confidential information and is sentfor the intended recipient(s) only. If, by an addressing or transmission error,this mail has been misdirected to you, you are requested to delete this mailimmediately. You are also hereby notified that any use, any form of reproduction, dissemination, copying, disclosure, modification, distribution
and/or publication of this e-mail message,contents or ts attachment(s) other than by its intended recipient(s) is strictly prohibited. Any opinions expressed in this email are those of the individual and not necessarily of the organization. Before opening attachment(s), please scan for viruses."
********************************************************************************************************************************************************
p.MsoNormal
{margin-left:18.75pt;}
********************************************************************************************************************************************************
"This e-Mail may contain proprietary and confidential information and is sentfor the intended recipient(s) only. If, by an addressing or transmission error,this mail has been misdirected to you, you are requested to delete this mailimmediately. You are also hereby notified that any use, any form of reproduction, dissemination, copying, disclosure, modification, distribution
and/or publication of this e-mail message,contents or ts attachment(s) other than by its intended recipient(s) is strictly prohibited. Any opinions expressed in this email are those of the individual and not necessarily of the organization. Before opening attachment(s), please scan for viruses."
********************************************************************************************************************************************************
Safety stocks final
This document discusses safety stock, which is inventory kept on hand to reduce the risk of temporary shortages due to variations in demand or delays in supply. It provides three key points:
1) Safety stock helps absorb variability in customer demand forecasts and lead times to improve customer service levels and prevent stockouts.
2) The right level of safety stock is important - too much wastes money in holding costs but too little can lead to lost sales from stockouts.
3) Safety stock is calculated based on the expected demand during the lead time and the variability or uncertainty in demand and lead times, using methods like percentage of lead time demand or number of days supply.
Time value of money
The document discusses the concept of time value of money, which is the principle that money received today is worth more than the same amount in the future due to its potential to earn interest. It defines key terms like present value and future value and provides formulas to calculate them. An example calculation demonstrates that receiving $10,000 today is preferable to receiving the same amount in 3 years, since the present value of $10,000 in 3 years at a 10% interest rate is $7,513.10. Understanding time value of money is important for financial decision making regarding investments, loans, savings, and more.
Formulation of lp problems
The travel agent is planning a charter trip with three tour package types (Deluxe, Standard, Economy) that differ in flight seating/service, accommodations, meals, and tours. The agent must determine the number of each package type to offer to maximize total profit, subject to constraints on minimum/maximum percentages of each type and maximum Deluxe packages per aircraft. The objective is to maximize total profit calculated as the sum of per-package profits multiplied by the number of packages, minus the fixed aircraft cost.
EOQ learning and calculation
The document discusses the economic order quantity (EOQ) model, which aims to determine the optimal lot size that minimizes total annual inventory holding and ordering costs. It provides the assumptions of the EOQ model and guidelines for when to use, modify, or not use the EOQ. It also gives an example calculation of the EOQ, total costs, and time between orders for a bird feeder item carried by a museum gift shop. The optimal lot size, or EOQ, balances annual holding and ordering costs and results in lower total annual inventory costs compared to the shop's current large lot size policy.
Cost accounting
This document provides information on single or output costing including its meaning, utility, costing procedure, elements of cost, components of total cost, cost sheet format and examples. Single or output costing is used when production is uniform, continuous and units produced are identical. It involves determining prime cost, factory cost, total cost and cost per unit. A cost sheet systematically presents various cost elements and is useful
Chapter 11 replacement & retention decisions
This document discusses replacement studies and key concepts:
1. A replacement study determines whether to replace an existing asset (defender) or keep it by comparing the annual worth (AW) of the defender to potential replacement assets (challengers).
2. The economic service life is the number of years an asset can be kept until its AW is lowest.
3. A replacement study either considers an unlimited time horizon or a specified study period. Over unlimited time, the defender is kept until its economic service life and then replaced. Within a specified period, all combinations are considered.
4. The replacement value is the defender's market value that equalizes its AW with a challenger, helping determine if the challenger
9. benefit cost analysis
This document provides examples and explanations for conducting benefit-cost analysis to evaluate engineering projects and alternatives. It defines the key steps and techniques in benefit-cost analysis including identifying project benefits and costs, quantifying them, discounting cash flows, and calculating the benefit-cost ratio. Examples are provided to demonstrate computing benefit-cost ratios, incremental analysis, and selecting the alternative with the highest ratio or most desirable increment above 1 to indicate project acceptance.
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This document discusses the economic order quantity (EOQ) model, which aims to minimize total inventory costs by balancing order processing costs and inventory holding costs. It provides the EOQ formula and assumptions, including known constant demand and lead times. An example is shown for a company ordering coffee makers with annual demand of 1000 units. The optimal order quantity is calculated as 80 coffee makers with an expected reorder point of 14 units. Factors that could impact the EOQ are also listed.
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This document discusses the economic order quantity (EOQ) model. The EOQ model determines the optimal order quantity that minimizes total inventory costs by balancing order processing costs and inventory holding costs. It assumes known demand, lead times, and costs. The formula for economic order quantity is derived and explained. An example application to a coffee maker order at SaveMart is provided to illustrate calculating optimal order quantity and reorder point using EOQ equations. Factors that could impact the EOQ are also listed.
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The document discusses inventory management concepts including the economic order quantity (EOQ) model. It provides the assumptions and equations of the EOQ model, which determines the optimal order quantity by minimizing total costs of ordering and holding inventory. It also discusses other inventory models like production order quantity and quantity discounts, as well as inventory classifications like ABC analysis.
OM_4.ppt
This document discusses inventory management. It defines inventory and describes its functions, types, material flow cycle, and costs. It discusses inventory management objectives like balancing investment and customer service. ABC analysis is presented as a method to classify inventory items based on annual dollar volume. The concepts of independent and dependent demand are introduced. Economic order quantity and reorder point models are explained as ways to minimize inventory costs by determining optimal order sizes and timing. Quantity discount models are also presented to leverage volume discounts when determining order quantities.
Inventory model (operation research)
This document is a project report on an inventory model submitted by three students. It includes:
1. An introduction to inventory, defining it as stock held for future production or sales in raw material, semi-finished, and finished forms. The objective is to minimize total costs or maximize profits.
2. A section on economic order quantity (EOQ) that describes costs of holding too much or too little inventory and assumptions like uniform demand. It includes a table calculating EOQ for different order quantities.
3. The EOQ formula and an example calculation of EOQ for Frooti beverages based on given demand and costs.
4. A re-order level calculation for Pad
Managing Inventory In SC Lect#12 in.pptx
This document discusses inventory management in supply chains. It begins by defining inventory as materials awaiting future sale or use. It then describes the different types of inventory held at various stages of the supply chain, from raw materials to finished goods.
The document outlines the costs associated with holding inventory, including purchase, ordering, and holding costs. It introduces concepts like economic order quantity (EOQ) and economic production quantity (EPQ) models to determine optimal lot sizes that minimize total costs.
The role of cycle inventory is explained, which allows different supply chain stages to purchase in larger lots than customer demand to take advantage of economies of scale. However, this increases total inventory levels and costs across the supply chain. Finally, the
Managing Inventory In SC Lect#12 in.pptx
This document discusses inventory management in supply chains. It begins by defining inventory as materials awaiting future sale or use. It then describes the different types of inventory held at various stages of the supply chain, from raw materials to finished goods.
The document outlines the costs associated with holding inventory, including purchase, ordering, and holding costs. It introduces concepts like economic order quantity (EOQ) and economic production quantity (EPQ) models to determine optimal lot sizes that minimize total costs.
The role of cycle inventory is explained, which allows different supply chain stages to purchase in larger lots than customer demand to take advantage of economies of scale. However, this increases total inventory levels and costs across the supply chain. Finally, the
Inventory Management Inventory management
This document provides an overview of inventory management concepts. It discusses the meaning and types of inventory, related costs like ordering, carrying, and shortage costs. It introduces the basic Economic Order Quantity (EOQ) model, which aims to minimize total inventory costs by balancing ordering and carrying costs. The EOQ model formulas and assumptions are explained. It is noted that total costs are not very sensitive around the optimal order quantity. The document also discusses decoupling inventory, quantity discounts, and ABC classification of inventory items.
Operations research : Inventory/Production Managemet and Queueing Theory
This document provides an overview of inventory management and queueing theory models. It defines key inventory terms like direct inventory, indirect inventory, holding costs, shortage costs, and setup costs. It then summarizes several deterministic inventory models that make assumptions about demand rates and allow or disallow shortages. These include the EOQ model without shortages and models that incorporate shortages. The document also introduces concepts in queueing theory, such as different states a queueing system can be in and symbols used. It provides examples of M/M/S queueing models that assume Poisson arrivals and exponential service times.
3. good inventory-management-edited-ppt
This document provides an overview of inventory control concepts including inventory management systems, economic order quantity models, reorder points, ABC classification, and purchasing. Key points covered include continuous and periodic inventory systems, assumptions of the basic EOQ model, safety stocks, reorder points with variable demand, and classifying inventory into A, B, and C categories based on annual usage and value to prioritize control efforts. The document also briefly discusses objectives of the purchasing function to ensure supply continuity while reducing costs.
Ch14. inventory management
This document discusses inventory management models. It describes opposing views on holding inventory, including reasons for and against it. It also covers the nature of inventory, including independent and dependent demand systems. Different inventory models are explained, including fixed order quantity and period systems. Key factors in inventory like order quantities, order points, and costs are defined.
Chapter 6_OM
This document discusses inventory management concepts and models. It begins by outlining learning objectives related to ABC analysis, cycle counting, economic order quantity (EOQ) models, reorder points, and other topics. It then provides details on Amazon's inventory management practices and types of inventory. The bulk of the document explains ABC analysis for classifying inventory, techniques for maintaining accurate records, factors that influence holding and ordering costs, and the EOQ model for determining optimal order quantities. It concludes by noting the robustness of the EOQ model and introducing the concept of reorder points.
Session 6
The document discusses various inventory management techniques. It begins by explaining ABC analysis, which classifies inventory into A, B, and C categories based on annual dollar value. It then discusses the economic order quantity (EOQ) model and how to calculate optimal order size to minimize total costs. Finally, it covers reorder points, production order quantities, and using quantity discounts to reduce product costs.
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Operations research : Inventory/Production Managemet and Queueing Theory
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EOQ Ken Homa
- 1. EOQ Model Economic Order Quantity Ken Homa
- 2. EOQ Assumptions • Known & constant demand • Known & constant lead time • Instantaneous receipt of material • No quantity discounts • Only order (setup) cost & holding cost • No stockouts
- 3. Inventory Holding Costs Reasonably Typical Profile % of Category Inventory Value Housing (building) cost 6% Material handling costs 3% Labor cost 3% Inventory investment costs 11% Pilferage, scrap, & obsolescence 3% Total holding cost 26%
- 4. EOQ Model Annual Cost Order Quantity
- 5. EOQ Model Annual Cost Holding Cost Order Quantity
- 6. Why Order Cost Decreases • Cost is spread over more units Example: You need 1000 microwave ovens 1 Order (Postage $ 0.35) 1000 Orders (Postage $350) Purchase Order Purchase Order Purchase Order Purchase Order Description Qty. Purchase OrderQty. Description Qty. Description Qty. Microwave 1000 Description Description Qty.11 Microwave Microwave 1 Microwave 1 Microwave Order quantity
- 7. EOQ Model Annual Cost Holding Cost Order (Setup) Cost Order Quantity
- 8. EOQ Model Annual Cost Total Cost Curve Holding Cost Order (Setup) Cost Order Quantity
- 9. EOQ Model Annual Cost Total Cost Curve Holding Cost Order (Setup) Cost Optimal Order Quantity Order Quantity (Q*)
- 10. EOQ Formula Derivation D= Annual demand (units) C= Cost per unit ($) Total cost = (Q/2) x I x C + S x (D/Q) Q= Order quantity (units) inv carry cost order cost S= Cost per order ($) I = Holding cost (%) Take the 1st derivative: H= Holding cost ($) = I x C d(TC)/d(Q) = (I x C) / 2 - (D x S) / Q² Number of Orders = D / Q To optimize: set d(TC)/d(Q) = 0 Ordering costs = S x (D / Q) DS/ Q² = IC / 2 Average inventory units = Q / 2 Q²/DS = 2 / IC $ = (Q / 2) x C Q²= (DS x 2 )/ IC Cost to carry average inventory = (Q / 2) x I x C Q = sqrt (2DS / IC) = (Q /2) x H
- 11. Economic Order Quantity 2× D× S EOQ = H D= Annual demand (units) S= Cost per order ($) C= Cost per unit ($) I = Holding cost (%) H= Holding cost ($) = I x C
- 12. EOQ Model Equations 2⋅ D ⋅S Optimal Order Quantity = Q * = H D Expected Number Orders = N = Q* Working Days / Year Expected Time Between Orders = T = N D d= D = Demand per year Working Days / Year S = Setup (order) cost per order H = Holding (carrying) cost ROP = d ⋅ L d = Demand per day L = Lead time in days
- 13. EOQ Example You’re a buyer for SaveMart. SaveMart needs 1000 coffee makers per year. The cost of each coffee maker is $78. Ordering cost is $100 per order. Carrying cost is 40% of per unit cost. Lead time is 5 days. SaveMart is open 365 days/yr. What is the optimal order quantity & ROP?
- 14. SaveMart EOQ 2× D× S EOQ = H D= 1000 2 ×1000 × $100 S= $100 EOQ = C= $ 78 $31.20 I= 40% H= CxI H= $31.20 EOQ = 80 coffeemakers
- 15. SaveMart ROP ROP = demand over lead time = daily demand x lead time (days) =dxl D = annual demand = 1000 Days / year = 365 Daily demand = 1000 / 365 = 2.74 Lead time = 5 days ROP = 2.74 x 5 = 13.7 => 14
- 16. SaveMart Average (Cycle Stock) Inventory Avg. CS = OQ / 2 = 80 / 2 = 40 coffeemakers = 40 x $78 = $3,120 Inv. CC = $3,120 x 40% = $1,248 Note: unrelated to reorder point
- 17. Economic Order Quantity 2× D× S EOQ = H D= Annual demand (units) S= Cost per order ($) C= Cost per unit ($) I = Holding cost (%) H= Holding cost ($) = I x C
- 18. 2× D× S EOQ = H What if … 2. Interest rates go up ? 3. Order processing is automated ? 4. Warehouse costs drop ? 5. Competitive product is introduced ? 6. Product is cost-reduced ? 7. Lead time gets longer ? 8. Minimum order quantity imposed ?