# Complete Exercises 11.1 and 11.6

Complete Exercises 11.1 and 11.6 on pages 285 and 288 in Quantitative Methods in Health Care Management. Use this template for your calculations and answers: Excel template for Exercises 11.1 and 11.6 Note on using the Excel templates: Use the automated Excel tables in Sheets 1 and 3 to perform calculations, and Sheets 2 and 4 to record your answers. For an explanation of the automated Excel tables, refer to Quantitative Methods, pp. 281–284. Save the template to your desktop before using. Make sure macros are enabled. Any existing numbers in green cells in the automated tables are for examples, and show where you should enter the data. You must delete or overwrite these numbers to perform the calculations. The yellow cells of templates are protected to prevent users from accidentally deleting or overwriting the formulas. There is no need to unprotect the templates.

A product used in a laboratory of the hospital costs \$60 to order, and its carrying cost per item per week is one cent. Demand for the item is six hundred units weekly. The lead time is three weeks and the purchase price is \$0.60.

a. What is the economic order quantity for this item?

b. What is the length of the order cycle?

c. Calculate the total weekly costs.

d. What is the investment cost for this item?

e. If ordering costs increase by 50 percent, how would that affect EOQ?

f. What would be the reorder point for this item if no safety stock were kept?

g. What would be the reorder point if one thousand units were kept as safety stock?

2: SURGERY ASSOCIATES, a local surgery practice group, orders implants from device manufacturers. Order quantities for ten items have been determined based on the past two years of usage. Other relevant information from the practice's inventory records is depicted in Table EX 11.6. The practice is functional for fifty-two weeks a year.

a. Perform basic EOQ analysis for each item.

b. Classify the implant inventory items according to the ABC analysis.

c. Calculate the yearly inventory management cost.

d. Determine the investment cost (per cycle) for each item.

TABLE EX 11.6

Implant Item No
Yearly Demand (Unit/Year)
Unit Cost
Yearly Carrying Rate of Each Item
Ordering Cost
1
104
2,225
12%
6.00
2
260
5,000
10%
5.00
3
728
3,550
8%
12.00
4
1,248
1,205
12%
28.00
5
104
11,100
2%
18.00
6
1,040
1,500
20%
32.00
7
780
1,900
11%
50.00
8
884
3,700
9%
12.00
9
780
6,400
2%
35.00
10
520
2,700
5%
12.00
USE THE FORMULAE BELOW

There are four conditions that affect the reorder point quantity: (1) the rate of forecast demand; (2) the length of lead time; (3) the extent of variability in lead time and demand; and (4) the degree of stock-out risk acceptable to management. When demand rate and lead time are constant, there is no risk of a stock-out created by increased demand or lead times longer than expected. Therefore, no cushions stock is necessary, and ROP is simply the product of usage rate and lead time as