Deck 10: Order Quantities

Question 1

Discuss the assumptions of the EOQ model.

Answer 1

The assumptions on which the EOQ is based are as follows: demand is relatively constant and is known, the item is produced or purchased in lots or batches and not continuously, order preparation costs and inventory- carrying costs are constant and known, and replacement occurs all at once.

Question 2

A variation on the fixed- order quantity system is the mix- max system where an order is placed with the quantity available rises above the order point.

Answer 2

False

Question 3

If the order point is 100 units, the maximum is 300 units, and the quantity actually available when the order is placed is 75, what is the order quantity?

A) 220
B) 80
C) 200
D) 225

Answer 3

D

Question 4

There is an order quantity in which the sum of the ____________ is a minimum.

A) carrying cost and the annual usage in units
B) ordering costs and the annual usage in units
C) ordering costs and carrying costs
D) carrying costs and unit cost

Question 5

The cost of placing a manufacturing order is made up from____________ .

A) setup costs
B) production control costs
C) production control and setup costs
D) neither production control nor setup costs

Question 6

The annual demand for a SKU is 10,075 units and it is ordered in quantities of 650 units. Calculate the average inventory and the number of orders placed per year.

Question 7

The buyer must decide whether to accept a quantity discount and must consider ____________costs.

A) ordering and carrying
B) purchase
C) purchase and ordering
D) purchase, order, and carrying

Question 8

Since the total cost is relatively ____________ around the EOQ, it is ____________ to have exact values.

A) sloped, critical
B) flat, critical
C) flat, not critical
D) sloped, not critical

Question 9

Demand is not uniform and stock must be built ahead. It is better to plan a buildup of____________ inventory based on capacity and future demand.

A) WIP
B) transportation
C) multiples of
D) anticipation

Question 10

Inventory management personnel must establish decision rules so top management will know when to order and how much.

Question 11

An item has an annual demand of $5,000, preparation costs of $20 per order, and a carrying cost of 20%. What is the EOQ in dollars?

Question 12

The ____________curve is flat at the bottom.

A) ordering cost
B) total cost
C) holding cost
D) carrying cost

Question 13

Discuss the characteristics or assumptions of the non instantaneous receipt model.

Question 14

If demand is lumpy and replenishment occurs over time, EOQ will produce the best results.

Question 15

It is usually east to determine accurately the cost of carrying inventory and the cost of ordering.

Question 16

Discuss the purpose of transportation inventory and why is is a consideration when calculating EOQ?

Question 17

An item has an annual demand of 25,000 units, a unit cost of $10, an order preparation cost of $10, and a carrying cost of 20%. It is ordered on the basis of an economic order quantity, but the supplier has offered a 2% discount on orders of $10,000 or more. Should the supplier's offer be accepted?

Question 18

The annual demand is 10,000 units, the ordering cost if $30 per order, the carrying cost is 20% and the unit cost if $15. The order quantity is 600 units. Calculate the a. annual ordering cost, b. the annual carrying cost, and c. the total annual cost.

Question 19

____________depend on the quantity ordered.

A) The cost of carrying inventory
B) The cost of ordering inventory
C) Both A and B
D) Neither A nor B

Question 20

The objectives of inventory management are to provide the required level of customer service and to reduce the sum of all costs involved. What questions must be answered to achieve these objectives?

Question 21

As the order quantity increases, the average inventory and the annual cost of carrying inventory decrease.

Question 22

For a family of items, the ordering costs and the carrying costs are generally the same for each item.

Question 23

One problem in using the EOQ formula is in determining the cost of ordering and the cost of carrying inventory.

Question 24

Parts are often ordered in convenient packages such as pallet loads, cases, or dozens, and it is adequate to pick the package quantity closest to the EOQ.

Question 25

There is no reason to calculate the EOQ for made- to- order items in which the customer specifies the order quantity,t he shelf life of the product is short, or the length of the run is limited by tool life or raw material batch size.

Question 26

Some suppliers require a minimum order.