Question 1

Extra inventory that is used to avoid stockouts is known as
A)planned shortages.
B)quantity discounts.
C)safety stock.
D)service level.
E)ABC analysis.

Accepted Answer

Safety stock is extra inventory that is held to prevent stockouts when demand is higher than expected or when there are unexpected disruptions in the supply chain. It serves as a buffer to maintain customer service levels and avoid lost sales. Planned shortages would be intentionally limiting inventory, quantity discounts refer to price breaks for larger quantities, service level is a performance indicator measuring the percentage of orders delivered on time, and ABC analysis is a method to categorize inventory by importance or value.

Question 2

The annual demand for a product has been projected at 2,000 units.This demand is assumed to be constant throughout the year.The ordering cost is $20 per order,and the holding cost is 20 percent of the purchase cost.The purchase cost is $40 per unit.There are 250 working days per year.Whenever an order is placed,it is known that the entire order will arrive on a truck in 6 days.Currently,the company is ordering 500 units each time an order is placed.What level of safety stock would give a reorder point of 60 units?
A)10
B)14
C)18
D)12
E)22

Accepted Answer

The answer of The annual demand for a product has...

Question 3

R.C.Barker makes purchasing decisions for his company.One product that he buys costs $50 per unit when the order quantity is less than 500.When the quantity ordered is 500 or more,the price per unit drops to $48.The ordering cost is $30 per order and the annual demand is 7,500 units.The holding cost is 10 percent of the purchase cost.How many units should R.C.order to minimize his total annual inventory cost? (Round your answer to the nearest unit. )
A)300
B)306
C)500
D)200
E)None of the above

Accepted Answer

To minimize total annual inventory cost, R.C. should order 500 units to take advantage of the lower price per unit, which reduces both purchase and holding costs.

Question 4

R.C.Barker makes purchasing decisions for his company.One product that he buys costs $50 per unit when the order quantity is less than 500.When the quantity ordered is 500 or more,the price per unit drops to $48.The ordering cost is $30 per order and the annual demand is 7,500 units.The holding cost is 10 percent of the purchase cost.If R.C.wishes to minimize his total annual inventory costs,he must evaluate the total cost for two possible order quantities.What are these two possible quantities? (Round answer to nearest unit. )
A)300 and 306
B)300 and 500
C)306 and 50
D)200 and 306
E)None of the above

Accepted Answer

To find the two possible order quantities, we need to use the Economic Order Quantity (EOQ) formula:

EOQ = sqrt(2DS/H)

Where:
D = annual demand = 7,500 units
S = ordering cost = $30 per order
H = holding cost as a percentage of purchase cost = 10% of $50 = $5

Plugging in the values, we get:

EOQ = sqrt(2*7,500*30/5) = sqrt(90,000) = 300

This gives us one possible order quantity. However, we also need to check if it's cheaper to order 500 units instead, since the price per unit drops to $48 at that quantity.

Total Cost for ordering 300 units = TC1
Total Cost for ordering 500 units = TC2

TC1 = Total annual ordering cost + Total annual holding cost
TC1 = [(7500/300)*30] + [(300/2)*50*0.1]
TC1 = 750 + 750
TC1 = $1500

TC2 = Total annual ordering cost + Total annual holding cost
TC2 = [(7500/500)*30] + [(500/2)*48*0.1]
TC2 = 450 + 1200
TC2 = $1650

As we can see, ordering 300 units is cheaper than ordering 500 units. Therefore, the two possible order quantities are 300 and 500, and the best choice is to order 300 units.

Question 5

The annual demand for a product has been projected at 2,000 units.This demand is assumed to be constant throughout the year.The ordering cost is $20 per order,and the holding cost is 20 percent of the purchase cost.Currently,the purchase cost is $40 per unit.There are 250 working days per year.Whenever an order is placed,it is known that the entire order will arrive on a truck in 6 days.Currently,the company is ordering 500 units each time an order is placed.What should be the reorder point (excluding any safety stock)under the current policy?
A)48
B)100
C)6
D)24
E)None of the above

Accepted Answer

The reorder point is calculated as the daily demand multiplied by the lead time. Daily demand is 2000 units / 250 days = 8 units per day. With a lead time of 6 days, the reorder point is 8 units/day * 6 days = 48 units.

Question 6

SAP,Oracle,and PeopleSoft are all examples of
A)MRP systems.
B)ERP systems.
C)JIT systems.
D)EDI systems.
E)None of the above

Accepted Answer

SAP, Oracle, and PeopleSoft are all Enterprise Resource Planning (ERP) systems. MRP (Material Requirements Planning) systems are a subset of ERP systems that focus on manufacturing planning and scheduling, Just-in-Time (JIT) systems focus on inventory management, and EDI (Electronic Data Interchange) systems focus on electronic transmission of data between businesses.

Question 7

A person is using the normal distribution to determine the safety stock for a product.What z value would be associated with a 90 percent service level?
A)0.90
B)1.28
C)0.53
D)0.64
E)None of the above

Accepted Answer

A 90 percent service level corresponds to a probability of 0.9 or 90% in the normal distribution. Using a standard normal table, the z value associated with this probability is 1.28. Therefore, choice B is the correct answer.

Question 8

The annual demand for a product has been projected at 2,000 units.This demand is assumed to be constant throughout the year.The ordering cost is $20 per order,and the holding cost is 20 percent of the purchase cost.Currently,the purchase cost is $40 per unit.There are 250 working days per year.Whenever an order is placed,it is known that the entire order will arrive on a truck in 6 days.How many units should the company order each time an order is placed if the company wishes to minimize total inventory cost?
A)100
B)200
C)250
D)500
E)None of the above

Accepted Answer

The EOQ formula is: EOQ = sqrt((2*D*O)/H)where:D = annual demandO = ordering costH = holding costIn this case, D = 2,000 units, O = $20, and H = 20% of $40 = $8.Plugging these values into the formula, we get:EOQ = sqrt((2*2,000*$20)/$8) = 100 unitsTherefore, the company should order 100 units each time an order is placed.

Question 9

Rolf Steps is the production manager for a local manufacturing firm.This company produces staplers and other items.The holding cost is $2 per unit per year.The cost of setting up the production line for this is $25.There are 200 working days per year.The production rate for this product is 80 per day.If the production order quantity is 200 units,what was the daily demand (rounded to the nearest whole unit)?
A)6 units
B)7 units
C)8 units
D)9 units
E)None of the above

Accepted Answer

The Economic Production Quantity (EPQ) formula is used to determine the optimal production order quantity. Given the production order quantity of 200 units and a production rate of 80 units per day, the daily demand can be calculated as: Daily Demand = (Production Order Quantity * Production Rate) / (Production Order Quantity + Holding Cost). Solving this gives a daily demand of approximately 7 units.

Question 10

Consider the material structure tree for item A below.If 10 units of A are needed,how many units of E are needed? 
A)60
B)6
C)240
D)24
E)480

Accepted Answer

The answer of Consider the material structure tree for item...

Question 11

The demand during the lead-time is normally distributed with a mean of 40 and a standard deviation of 4.If the company wishes to maintain a 90 percent service level,how much safety stock should be held?
A)45.12
B)41.28
C)1.28
D)5.12
E)None of the above

Accepted Answer

To determine the safety stock, we need to use the formula:
Safety Stock = Z-value x Standard Deviation x Square root of Lead Time

Z-value for 90% service level is 1.28 (from standard normal distribution table), and the lead time is not given. Let's assume the lead time is one period.

Then, Safety Stock = 1.28 x 4 x sqrt(1) = 5.12

Therefore, the company should hold 5.12 units of safety stock to maintain a 90% service level.

Question 12

Judith Thompson,the manager of the student center cafeteria,has added pizza to the menu.The pizza is ordered frozen from a local pizza establishment and baked at the cafeteria.Judith anticipates a weekly demand of 10 pizzas.The cafeteria is open 45 weeks a year,5 days a week.The ordering cost is $15 and the holding cost is $0.40 per pizza per year.The pizza vendor has a 4-day lead-time and Judith wants to maintain 1 pizza for safety stock.What is the optimal reorder point?
A)10
B)8
C)4
D)9
E)None of the above

Accepted Answer

Step 1: Calculate the annual demand
Weekly demand = 10 pizzas
Days open per week = 5
Weekly demand x Days open per week = Daily demand
10 x 5 = 50 pizzas per week
Annual demand = Daily demand x Weeks open per year
50 x 45 = 2250 pizzas per year

Step 2: Calculate the ordering cost
Ordering cost = $15 per order

Step 3: Calculate the holding cost
Holding cost = $0.40 per pizza per year

Step 4: Calculate the lead time demand
Lead time = 4 days
Daily demand = 50 pizzas per day
Lead time demand = Daily demand x Lead time
50 x 4 = 200 pizzas

Step 5: Calculate the safety stock
Safety stock = 1 pizza

Step 6: Use the formula to calculate the reorder point
Reorder point = (Annual demand / 5) + Lead time demand + Safety stock
Reorder point = (2250 / 5) + 200 + 1
Reorder point = 451 + 200 + 1
Reorder point = 652

Therefore, the optimal reorder point is 652 pizzas. The best choice is D.

Question 13

The "point at which to reorder" depends directly on which of the following?
A)EOQ
B)ordering cost
C)lead-time
D)storage costs
E)unit purchasing cost

Accepted Answer

The reorder point is determined by the lead-time demand, which is the time it takes for an order to be delivered once it is placed.

Question 14

The annual demand for a product is 1,000 units.The company orders 200 units each time an order is placed.The lead-time is 6 days,and the company has determined that 20 units should be held as a safety stock.There are 250 working days per year.What is the reorder point?
A)20
B)24
C)44
D)120
E)None of the above

Accepted Answer

First, we need to calculate the economic order quantity (EOQ).
EOQ = sqrt((2 x annual demand x ordering cost)/holding cost per unit)
Ordering cost = 0 (since it is not given in the question)
Holding cost per unit = (cost of holding one unit per year) / (unit cost) = 20/1 = 20
EOQ = sqrt((2 x 1000 x 0)/20) = 0
Since the EOQ is zero, it means we need to reorder every time the inventory level reaches zero. Thus, the reorder point would be equal to the sum of the lead time demand and the safety stock.
Lead time demand = daily demand x lead time = (1000/250) x 6 = 24
Reorder point = lead time demand + safety stock = 24 + 20 = 44
Therefore, the reorder point is 44, which corresponds to choice (C).

Question 15

The annual demand for a product is 1,000 units.The company orders 200 units each time an order is placed.The lead-time is 6 days.There are 250 working days per year.If the reorder point is 50,what safety stock are they using?
A)22
B)4
C)26
D)28
E)None of the above

Accepted Answer

Reorder point = (Demand during lead time) + Safety stock

Demand during lead time = Daily demand x lead time = (1000/250) x 6 = 24 units

Reorder point = 24 + 50 = 74 units

Each order is for 200 units, so safety stock = Order quantity - Reorder point = 200 - 74 = 126 units

However, safety stock should be based on variability in demand and lead time. Without additional information, we cannot determine if the safety stock of 26 units is appropriate.

Question 16

Andre Candess manages an office supply store.One product in the store is computer paper.Andre knows that 10,000 boxes will be sold this year at a constant rate throughout the year.There are 250 working days per year and the lead-time is 3 days.The cost of placing an order is $30,while the holding cost is $15 per box per year.If Andre orders 500 boxes each time he orders from his supplier,what would his total annual inventory cost be (holding cost plus ordering cost)?
A)$3,000
B)$4,350
C)$3,075
D)$3,750
E)None of the above

Accepted Answer

The answer of Andre Candess manages an office supply store.One...

Question 17

As the service level increases,
A)safety stock increases at a decreasing rate.
B)safety stock increases at an increasing rate.
C)safety stock decreases at an increasing rate.
D)safety stock decreases at a decreasing rate.
E)None of the above

Accepted Answer

As the service level increases, the probability of stockouts decreases, but when a stockout occurs, it is typically for larger quantities. Therefore, safety stock needs to increase at a faster rate to accommodate for the larger potential stockouts.

Question 18

Consider the material structure tree for item A below.If 20 units of A are needed,how many units of D are needed? 
A)11
B)30
C)160
D)60
E)220

Accepted Answer

The answer of Consider the material structure tree for item...

Question 19

A person is using the normal distribution to determine the safety stock for a product.The Z value of 1.65 would be associated with what service level?
A)90 percent
B)95 percent
C)100 percent
D)92.5 percent
E)None of the above

Accepted Answer

The Z value of 1.65 corresponds to a probability of 95.45% or a service level of 95%. Therefore, the correct choice is B, which corresponds to a 95% service level.

Question 20

An inventory model that can handle dependent demand is called a(n)
A)MRP system.
B)JIT system.
C)ERP system.
D)Kanban system.
E)VMI system.

Accepted Answer

MRP (Material Requirements Planning) system is designed to handle dependent demand. It is a computer-based inventory management system that calculates the material and component requirements based on the demand forecast for finished products. Therefore, A is the best choice.

Quiz 6: Inventory Control Models

Extra inventory that is used to avoid stockouts is known as

SAP,Oracle,and PeopleSoft are all examples of

A person is using the normal distribution to determine the safety stock for a product.What z value would be associated with a 90 percent service level?

Consider the material structure tree for item A below.If 10 units of A are needed,how many units of E are needed?

The demand during the lead-time is normally distributed with a mean of 40 and a standard deviation of 4.If the company wishes to maintain a 90 percent service level,how much safety stock should be held?

The "point at which to reorder" depends directly on which of the following?

The annual demand for a product is 1,000 units.The company orders 200 units each time an order is placed.The lead-time is 6 days,and the company has determined that 20 units should be held as a safety stock.There are 250 working days per year.What is the reorder point?

The annual demand for a product is 1,000 units.The company orders 200 units each time an order is placed.The lead-time is 6 days.There are 250 working days per year.If the reorder point is 50,what safety stock are they using?

As the service level increases,

Consider the material structure tree for item A below.If 20 units of A are needed,how many units of D are needed?

A person is using the normal distribution to determine the safety stock for a product.The Z value of 1.65 would be associated with what service level?

An inventory model that can handle dependent demand is called a(n)