P2.Fly-at-Night Express uses 10;000 #3 envelopes per month. It costs $50 to order and receivea shipment of these envelopes. The envelopes cost $:40 each, and Fly-at-Night uses an inventorycarrying cost rate of $:12 per envelope per year.
(a) (2 pts) Determine the economic order quantity (EOQ).
(b) (2 pts) Determine the time between orders when the EOQ is used if Fly-at-Night operates307 days per year.
(c) (2 pts) Calculate the total cost of managing the inventory when the EOQ is used.(c) (2 pts) What should the reorder point be if the envelope supplier takes ten working days todeliver?
(d) (2 pts) If the usage rate given is an average and the standard deviation of daily usage ofenvelopes is 75, what should the reorder point and safety stock be if Fly-at-Night wants totake no more than a 5% chance of running out of stock of envelopes during any given ordercycle (i.e.,Z= 1:645)
(5 pts) Bonnie’s Bikes manufactures bikes to customers’ orders for all ages and budgets. When
a customer calls in an order or sends it via the Internet, Bonnie’s Bikes will try to build a bike to
order and ship it the next day. There follows a listing of the major component categories. The
average cost of a component and the average demand for each category are also listed. Using ABC
analysis, help Bonnie’s Bikes sort out which items to pay more attention to
Item Category Average Unit Cost Average Demand
Tires (26″) $11.00 170
Tires (24″) $4.00 100
Tires (20″) $3.00 80
Tire Valves $0.08 1000
Tire Tubes $2.00 1000
Spokes $0.14 22000
Rims (26″) $2.12 170
Rims (24″) $2.00 200
Rims (20″) $1.75 200
Re ectors $0.05 100
Pumps $11.00 170
Lights $3.00 90
Frames (Women’s) $60.00 30
Frames (Men’s) $55.00 500
Frames (Children’s) $45.00 100
Forks $40.00 55
Fenders $10.00 35
Derailer $20.00 1000
Chains $1.00 500
Bells $3.00 100
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