Question: Jan Kottas is the owner of a small company that buys and resells electric knives used to cut fabric. The annual demand is for 8,000 knives, and Jan is currently buying from Knives-R-Us. The ordering cost is $100 per order. The carrying cost per year is 4% of the acquisition cost of the knife, which is $20.00.

1. Using the economic order quantity, how many knives should Jan order in each order? Why?
2. Jan has been approached by Knives-R-Us about buying knives under a new pricing pattern. One option is to order them in quantities between 1600 and 1699. If she does this, Knives-R-Us will lower the acquisition price to $19.75 each. If she buys 1700 or more at a time, the company will lower the price to $19.50. Considering the total inventory cost, including the acquisition cost of the knives, how many should she buy per order? Of course, she can still by that at $20.00 per knife.
3. Jan has decided not to pursue either option offered in part b). So Knives-R-Us has given her another option. She can buy her entire year's demand for knives in two equal quantities, half on January 1 and the half on July 1. If she does this, they would help by giving her a rebate (or refund) on her ordering cost. This would result in the ordering cost being $0. They would also lower the price to $19.90 per knife. Considering all of the costs, should Jan take this option or the option offered in part a)?

1. Inventory carrying cost is $100 per floppy disk unit per quarter.
2. The plant works the same number of days in each quarter, 12 five-day weeks, 6 hours per day.
3. Beginning inventory is zero floppy disk units.
4. In a backlog situation, the customer will wait for his order to be filled but will expect a price reduction each quarter he waits. The backlog costs are $300 per floppy disk for the first quarter the customer waits, $700 for the second quarter the customer waits, and $900 for the third quarter the customer waits. In any quarter, if there is a backlog, this backlog will be filled before the demand for that period is filled.
5. The cost of hiring a worker is $800 while the cost of layoffing a worker is $950.
6. The straight time labor rate is $20 per hour for the first quarter and increases to $22 per hour in the fourth quarter.
7. Overtime work is paid at time and a half (150%) of the straight time work.
8. Outsourcing (contract work) is paid at the rate of $475 per disk unit for the labor and you provide the material
9. Demand is projected to increase this year. Demand during the fourth quarter of the prior year was 2,340 units. The demand for the first quarter of the next year (year following the year you are analyzing) is projected to be at the 2,700 unit level.

1. Computer Products is considering the "matching" or "chasing" demand aggregate planning model for meeting the disk production. Ignoring the material cost, what is the total cost to produce the disks for the year?
2. You want to maintain a work force capable of producing 2,250 in a quarter and outsourcing any disk units over this quantity. What is the total cost of this option, excluding the material cost? Be sure to include any hiring and layoff costs
3. The company will maintain a work force capable of producing 2,340 units in a quarter. It will allow backlogs to occur until the fourth quarter when it will outsource all demand that cannot be met with its own workforce. What is the total cost of this option, excluding the material cost? Be sure to include any hiring and layoff costs.

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