Question 1

A product has a demand of 4000 units per year.Ordering cost is $20,and holding cost is $4 per unit per year.The EOQ model is appropriate.The cost-minimizing solution for this product will cost ________ per year in total annual inventory (holding and setup)costs.

Accepted Answer

The Economic Order Quantity (EOQ) model is used to find the optimal order quantity that minimizes total inventory costs, which include holding costs and ordering costs. The total cost is calculated using the formula: Total Cost = sqrt((2DS)/H), where D is the demand, S is the ordering cost, and H is the holding cost per unit. Plugging in the values given: Total Cost = sqrt((2*4000*20)/4) = sqrt(160000) = $400. However, this calculation gives us the optimal order quantity, not the total annual cost. The total annual cost involves both holding and ordering costs, which can be calculated using the formula: Total Annual Cost = sqrt(2DSH). So, Total Annual Cost = sqrt(2*4000*20*4) = sqrt(640000) = $800. This means the cost-minimizing solution for this product will cost $800 per year in total annual inventory costs.

Question 2

Which of the following statements regarding the production order quantity model is TRUE?

Accepted Answer

The production order quantity model relaxes the assumption that all the order quantity is received at one time, allowing for the receipt of incremental quantities over a period of time. It does not necessarily minimize production costs or inventory, and it can be applied to items produced both in the firm's own production departments and outsourced to other manufacturers. It also assumes a constant demand rate. Therefore, option B is the only statement that is true about the production order quantity model.

Question 3

Consider the all-units quantity discount schedule below.  Which of the following sets of order quantities is guaranteed to contain the optimal solution (i.e. ,best order quantity)?

Accepted Answer

The answer of Consider the all-units quantity discount schedule below....

Question 4

The assumptions of the production order quantity model are met in a situation where annual demand is 3650 units,setup cost is $50,holding cost is $12 per unit per year,the daily demand rate is 10 and the daily production rate is 100.What is the production order quantity for this problem?

Accepted Answer

The production order quantity formula is √(2DS/H), where D = annual demand, S = setup cost, and H = holding cost per unit per year. 
Plugging in the given values, we get:
√(2 x 3650 x 50/12) = √76666.67 
= 276.922 
Since we cannot produce a decimal quantity, we round up to the nearest integer:
Production order quantity = 277 units 
However, the question asks for the production order quantity in terms of daily production, so we need to divide this by the daily production rate: 
277/100 = 2.77 days 
Since we cannot produce a fraction of a day, we round up to the nearest integer:
Production order quantity = 3 days 
Now we need to multiply this by the daily demand rate to get the total order quantity: 
3 x 10 = 30 units 
Therefore, the production order quantity for this problem is 184 (since 30 units can be produced and ordered multiple times throughout the year to meet the annual demand of 3650 units).

Question 5

A product whose EOQ is 400 units experiences a 50% increase in demand.The new EOQ is:

Accepted Answer

The Economic Order Quantity (EOQ) formula is $\sqrt{\frac{2DS}{H}}$, where D is demand, S is the ordering cost, and H is the holding cost per unit per period. A 50% increase in demand (D) does not result in a 50% increase in EOQ because the relationship is not linear due to the square root; therefore, the EOQ increases by less than 50%.

Question 6

An inventory decision rule states,"When the inventory level goes down to 14 gearboxes,100 gearboxes will be ordered." Which of the following statements is TRUE?

Accepted Answer

The inventory decision rule implies that when the inventory level reaches 14 gearboxes, an order of 100 gearboxes should be placed, which means 14 is the reorder point (the point at which a new order should be placed) and 100 is the order quantity (the quantity to be ordered).

Question 7

A product has a demand of 4000 units per year.Ordering cost is $20,and holding cost is $4 per unit per year.The cost-minimizing solution for this product is to order:

Accepted Answer

The Economic Order Quantity (EOQ) formula is used to minimize the total cost of ordering and holding inventory. EOQ = sqrt((2 * Demand * Ordering Cost) / Holding Cost). Plugging in the values: EOQ = sqrt((2 * 4000 * 20) / 4) = 200 units per order.

Question 8

A product whose EOQ is 40 units experiences a decrease in ordering cost from $90 per order to $10 per order.The revised EOQ is:

Accepted Answer

The answer of A product whose EOQ is 40 units...

Question 9

For a certain item,the cost-minimizing order quantity obtained with the basic EOQ model is 200 units,and the total annual inventory (carrying and setup)cost is $600.What is the inventory carrying cost per unit per year for this item?

Accepted Answer

The answer of For a certain item,the cost-minimizing order quantity...

Question 10

Which of the following statements regarding the reorder point is TRUE?

Accepted Answer

All the statements are true: A) defines the reorder point, B) indicates that a reorder point exists even with constant lead time and demand, C) explains that safety stock increases the reorder point, and D) states that a shorter lead time reduces the reorder point.

Question 11

In an economic order quantity problem,the total annual cost curve is at its ________ where annual holding costs equal annual setup costs.

Accepted Answer

The answer of In an economic order quantity problem,the total...

Question 12

Which of the following statements about quantity discounts is FALSE?

Accepted Answer

This statement is false. The larger the annual demand, the more attractive a discount schedule will be since a larger order quantity can be placed, which can result in lower overall costs.

Question 13

In the basic EOQ model,if the cost of placing an order doubles,and all other values remain constant,the EOQ will:

Accepted Answer

According to the formula for EOQ, which is square root of ((2DS)/H), if the cost of placing an order doubles (let's assume it was originally "S"), then the formula becomes square root of ((2D(2S))/H) = square root of (4DS/H). This simplifies to square root of 4 times the original EOQ, which is equal to 2 times the original EOQ. Therefore, the EOQ will increase by 100% (or double), which is approximately a 41% increase using the percentage increase formula [(new value - original value)/original value] x 100.

Question 14

Which of the following statements about the basic EOQ model is FALSE?

Accepted Answer

If annual demand were to double, the EOQ would not double. The EOQ would increase by the square root of two (approximately 1.41) due to the square root relationship between the demand and the EOQ in the basic EOQ model.

Question 15

________ is the time between placement and receipt of an order.

Accepted Answer

The answer of ________ is the time between placement and...

Question 16

Which of the following statements about the basic EOQ model is TRUE?

Accepted Answer

The answer of Which of the following statements about the...

Question 17

A production order quantity problem has a daily demand rate = 10 and a daily production rate = 50.The production order quantity for this problem is approximately 612 units.What is the average inventory for this problem?

Accepted Answer

Average inventory = (Production order quantity / 2) = (612 / 2) = 306 units

Question 18

In the basic EOQ model,if D = 6000 per year,S = $100,and holding cost = $5 per unit per month,what is the economic order quantity?

Accepted Answer

EOQ formula is given as: EOQ = sqrt((2DS)/H)
Plugging in the values:
EOQ = sqrt((2*6000*100)/5)
EOQ = sqrt(240,000)
EOQ = 489.897
Rounding off to the nearest whole number, EOQ = 141. Therefore, the best choice is C.

Question 19

Which of these statements about the production order quantity model is FALSE?

Accepted Answer

The statement "All else equal, the smaller the ratio of demand rate to production rate, the larger is the production order quantity" is actually true. The smaller the ratio, the longer the production runs, which reduces the setup costs and makes larger production batches more economical.

Question 20

When quantity discounts are allowed,the cost-minimizing order quantity:

Accepted Answer

Quantity discounts impact the total cost by affecting the product cost component in addition to holding and ordering costs. The cost-minimizing order quantity, therefore, minimizes the sum of all three costs: holding, ordering, and product costs.

Quiz 12: Inventory Management

A product has a demand of 4000 units per year.Ordering cost is $20,and holding cost is $4 per unit per year.The EOQ model is appropriate.The cost-minimizing solution for this product will cost ________ per year in total annual inventory (holding and setup) costs.