Deck 7: Inventory

Question 1

A company recently lowered its service performance from 99% product availability to 97% product availability. The change saved the company exactly $1million per year in inventory carrying cost.Senior management now wants to lower the service level to 95% from 97%. Such a further change is likely to save:

A)less than $1 million
B)about another $1 million
C)more than $1 million
RajDee Furniture Company (RFC) buys and sells office furniture. The company buys chairs from a manufacturer for $40 per unit. Order costs are $200 per order and there is a lead time of 10 days for each order to arrive from the manufacturer to RFC warehouse. Inventory carrying cost for RFC is 10%. Average yearly demand for the chairs is 40,000 units. Answer the following questions, assuming there is no uncertainty at all about the demand or the lead time.

Answer 1

A

Question 2

Suppose demand is 25 units a month and average inventory is 30 units and unit cost is $10. What is the annual inventory turnover?

A)100
B)10
C).83333
D)83.333

Answer 2

B

Question 3

Given the information above about RAJ and LEE, which of the following is true?

A)both will have the same annual ordering cost
B)both will have the same reorder point
C)both will have the same inventory turnover
D)all of the above are true

Answer 3

B

Question 4

When calculating a Reorder Point (ROP), which of the following factors WOULD NOT affect the calculation?

A)Item's EOQ
B)Delivery lead time.
C)Demand during the delivery lead time.
D)Standard deviation of demand during delivery lead time.

Question 5

How much is the annual inventory carrying cost of the safety stock because of this decision?

A)$755
B)$610
C)$594
D)$351

Question 6

Safety stock exists for which of the following reasons?

A)To allow less expensive purchases by buying more
B)To allow for transportation time
C)To provide protection against the uncertainties of supply and demand
D)None of the above

Question 7

many orders will RIM place in a year? (round up to the nearest whole number)

A)2 orders
B)3 orders
C)4 orders
D)5 orders

Question 8

EOQ is? (round up to the nearest whole number)

A)566 pounds
B)164 pounds
C)163 pounds
D)26667 pounds

Question 9

Suppose you tell management at Cooper Company (in the above two questions) it should raise safety stock to the six sigma level.If Cooper decides to do this, it will incur an additional inventory carrying cost of approximately how much?

A)$2,160
B)$234
C)cannot be determined
D)$1,566

Question 10

How many units should RFC order each time?

A)2000
B)200
C)100
D)400

Question 11

happens to the EOQ when the unit cost increases (assuming all other variables remain the same)?

A)EOQ increases
B)EOQ decreases
C)EOQ remains the same
D)None of the above (need more information)
Rajesh Indian Market (RIM) is open 12 months out of the year. At RIM, the demand for rice is very consistent 200 pounds per month. RIM orders the rice from a distributor in India at an ordering cost of $50 per order. Rice costs $5 per pound, and annual carrying charge is 15%. Answer question 7-11 based on this information.

Question 12

A batch of Raisin Bran that has been made at Kellogg's, but not yet packaged in its final cereal box would be an example of ______ inventory.

A)Raw Material
B)Work-in-process
C)Finished Goods
D)Maintenance, repair and operating supplies (MRO)

Question 13

Suppose management decides it wants to offer a 95% service level. That is, Cooper Company is willing to experience a stock-out probability of 5% during the order cycle. How much safety stock should be carried?

A)33 units
B)35 units
C)46 units
D)25 units

Question 14

Jones Company has calculated that the EOQ for a particular item is 1,000 units.However, Jones does not have enough capital to order that many units each time, so it only orders 250 units at a time. This will result in:

A)Higher annual inventory carrying cost than ordering the EOQ quantity
B)Lower annual inventory carrying cost than ordering the EOQ quantity
C)Lower annual ordering cost than ordering the EOQ quantity
D)Cannot be determined

Question 15

What is the annual ordering cost (based on the rounded up number of orders)?

A)$150
B)$175
C)$200
D)$250
Cooper Company has average demand of 50 units per day. Lead time from the supplier averages 20 days. The combined standard deviation of demand during lead time is 20 units. The item costs $75 and inventory carrying cost is 24%. Answers to the next two questions are based on this information.
1 standard deviation covers 84.13%
1)04 standard deviations covers 85%
1)28 standard deviations covers 90%
1)65 standard deviations covers 95%
1)96 standard deviations covers 97.5%
2 standard deviations covers 97.72%
2)33 standard deviations covers 99%
3 standard deviations covers 99.86%
6 standard deviations covers 99.99966%

Question 16

is the average inventory? (round up to the nearest whole number)

A)1200 units
B)283 units
C)250 units
D)275 units

Question 17

What is the inventory turnover?

A)8.48 times
B)0.7 times
C)10.49 times
D)10.5 times

Question 18

Alpha Company places 10 orders per year with its supplier.Each order is for an amount exactly equal to the EOQ. Alpha's order cost has been determined to be $50 per order. Alpha carries no safety stock at all.What is Alpha's annual inventory carrying cost?

A)cannot be determined without further information
B)$50
C)$250
D)$500

Question 19

of capital or opportunity cost is one of the major "Carrying Costs." Another example of carrying cost is?

A)Cost of obsolescence and loss
B)Taxes
C)Insurance
D)All of the above

Question 20

RAJ Company and LEE Company each annually order the exact same amount of an item from the same supplier (They each have the exact same annual demand from their customers for this item and the lead time from the supplier is the same for both companies). There is no variation at all for either company in either daily demand or lead time from the supplier.They pay the exact same price to the supplier for the item. They both figure that their ordering cost is $50 per order.However, RAJ has determined its annual inventory carrying cost is 20%, whereas LEE figures it is only 10%. Which of the following would be true?

A)RAJs EOQ is higher than Lee's EOQ
B)LEE's EOQ is higher than RAJ's EOQ
C)both have the same EOQ

Question 21

What would average inventory be if RFC orders this quantity every time?

A)100
B)200
C)1000
D)50

Question 22

If average lead time went up from 10 to 15 days, what will happen to EOQ?

A)Increase of 200 units
B)Decrease of 200 units.
C)No change in EOQ
D)Increase of 100 units

Question 23

Which of the following is included in the cost of carrying inventory?

A)Heating and lighting a warehouse
B)inventory obsolescence
C)material handling
D)all of the above