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Exam 13: Inventory Management

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Question 71

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In the basic EOQ model, annual holding cost is one-half of the total annual cost for all items purchased.

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Question 72

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Which of the following is not true for Economic Production Quantity model?

A) Usage rate is constant.
B) Production rate exceeds usage rate.
C) Run size exceeds maximum inventory.
D) There are no ordering or setup costs.
E) Average inventory is one-half maximum inventory.

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Question 73

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The purpose of "cycle counting" is to:

If no variations in demand or lead time exist, the ROP will equal:

A dry cleaning firm uses an average of 20 gallons of cleaning fluid a day.Usage tends to be normally distributed with a standard deviation of two gallons per day.Lead time is four days, and the desired service level is 92 percent.What amount of safety stock is appropriate if a fixed order size of 600 gallons is used?

The objective of inventory management is to minimize the cost of holding inventory.

The operator of a concession at a downtown location estimates that he will sell 400 bags of circus peanuts during a month.Carrying costs are 17 percent of unit price and ordering cost is $22.The price schedule for bags of peanuts is: 1 to 199, $1.00 each; 200 to 499, $.94 each; and 500 or more $.87 each.What order size would be most economical?

If she were to order 6,000 bills at a time, what would be the dollar value of the average inventory level?

A company can produce a part it uses in an assembly operation at the rate of 50 an hour.The company operates eight hours a day, 300 days a year.Daily usage of the part is 300 parts.The company uses the part every day.The run size is 6,000 parts.The annual holding cost is $2 per unit, and setup cost is $100. (A) How many runs per year will there be? (B) While production is occurring, how many parts per day are being added to inventory? (C) Assuming that production begins when there are no parts on hand, what is the maximum number of parts in inventory? (D) The machine is dedicated to this product.Every so often, preventive maintenance, which requires six working days, must be performed on it.Does this interrupt production cycles, or is there enough time between cycles to perform the maintenance? Explain.

A shop owner uses a reorder point approach to restocking a certain raw material.Lead time is six days.Usage of the material during lead time is normally distributed with a mean of 42 pounds and a standard deviation of 4 pounds.When should the raw material be reordered if the acceptable risk of a stockout is 3%?

Discrete stocking levels are used when an organization doesn't want visibility of inventory levels.

With an A-B-C system, an item that had a high demand but a low annual dollar volume would probably be classified as:

What is the economic order quantity for Stein beer?

What is the economic order quantity for resin?

Dairy items, fresh fruit and newspapers are items that:

Cycle counting can be used in motorcycle inventory control.

A manager intends to order a new machine and must now decide on the number of spare parts to order along with the machine.The parts cost $400 each and have no salvage value.The manager has compiled a frequency distribution for the probable usage of spare parts, as shown.For what range of shortage costs would stocking one spare part constitute an optimal decision? Number of

A manager reorders lubricant when the amount on-hand reaches 422 pounds.Average daily usage is 45 pounds, which is normally distributed with a standard deviation of three pounds per day.Lead time is nine days.What is the risk of a stockout?

If unsold copies can be returned for half credit and the owner stocks ten copies, what is the implied range of shortage cost?

To provide satisfactory levels of customer service while keeping inventory costs within reasonable bounds, two fundamental decisions must be made about inventory: the timing and size of orders.