Deck 12: Inventory Control Models

Question 1

Processing and inspecting incoming inventory are considered ordering cost factors.

Answer 1

True

Question 2

The optimal Economic Order Quantity (EOQ)minimizes the sum of ordering and purchasing costs.

Answer 2

False

Question 3

Which of the following is NOT considered to be a part of carrying costs?

A)insurance
B)spoilage
C)obsolescence
D)theft
E)inspection

Answer 3

E

Question 4

Use this information to answer the following questions.
A bakery buys sugar in 15-pound bags.The bakery uses 5000 bags of sugar each year.Carrying costs are $20 per bag per year.Ordering costs are estimated at $5 per order.Assume that the bakery is open 250 days a year and its daily demand is estimated at 20 bags.It takes 5 days for each order of sugar to be filled.
Refer to the information above.What is the optimal EOQ?

A)200 bags
B)5000 bags
C)2500 bags
D)100 bags
E)50 bags

Question 5

Use this information to answer the following questions.
A cake factory can produce cakes at the rate of 500 per day.The factory supplies its cakes to local grocery stores at a rate of 250 per day.The cost to prepare the equipment for producing the cakes is $20.Annual holding costs are $2 per cake.Assume that the factory operates 250 days a year.
Refer to the information above.What are the total annual setup and holding costs?

A)$1267.83
B)$1456.12
C)$1581.14
D)$1390.78
E)$1100.45

Question 6

Use this information to answer the following questions.
A bakery buys sugar in 15-pound bags.The bakery uses 5000 bags of sugar each year.Carrying costs are $20 per bag per year.Ordering costs are estimated at $5 per order.Assume that the bakery is open 250 days a year and its daily demand is estimated at 20 bags.It takes 5 days for each order of sugar to be filled.
Refer to the information above.What is the maximum inventory held in a given EOQ cycle?

A)5000 bags
B)200 bags
C)50
D)100 bags
E)15 bags

Question 7

Use this information to answer the following questions.
A bakery buys sugar in 15-pound bags.The bakery uses 5000 bags of sugar each year.Carrying costs are $20 per bag per year.Ordering costs are estimated at $5 per order.Assume that the bakery is open 250 days a year and its daily demand is estimated at 20 bags.It takes 5 days for each order of sugar to be filled.
Refer to the information above.What is the average inventory held in a given cycle?

A)0
B)50
C)25
D)100
E)75

Question 8

Use this information to answer the following questions.
A cake factory can produce cakes at the rate of 500 per day.The factory supplies its cakes to local grocery stores at a rate of 250 per day.The cost to prepare the equipment for producing the cakes is $20.Annual holding costs are $2 per cake.Assume that the factory operates 250 days a year.
Refer to the information above.What is the maximum inventory held in a given cycle?

A)825.56
B)790.57
C)800
D)900.39
E)750.44

Question 9

Use this information to answer the following questions.
A bakery buys sugar in 15-pound bags.The bakery uses 5000 bags of sugar each year.Carrying costs are $20 per bag per year.Ordering costs are estimated at $5 per order.Assume that the bakery is open 250 days a year and its daily demand is estimated at 20 bags.It takes 5 days for each order of sugar to be filled.
Refer to the information above.What is the minimum inventory held in a given EOQ cycle?

A)0 bags
B)2500 bags
C)50 bags
D)25 bags
E)100 bags

Question 10

Use this information to answer the following questions.
A cake factory can produce cakes at the rate of 500 per day.The factory supplies its cakes to local grocery stores at a rate of 250 per day.The cost to prepare the equipment for producing the cakes is $20.Annual holding costs are $2 per cake.Assume that the factory operates 250 days a year.
Refer to the information above.What is the optimal number of yearly setups?

A)43.25
B)37
C)45
D)47.94
E)39.53

Question 11

The Z-value for a desired service level of 0.95 is ________.

A)1)28
B)1)65
C)1)96
D)2)33
E)2)58

Question 12

Use this information to answer the following questions.
A cake factory can produce cakes at the rate of 500 per day.The factory supplies its cakes to local grocery stores at a rate of 250 per day.The cost to prepare the equipment for producing the cakes is $20.Annual holding costs are $2 per cake.Assume that the factory operates 250 days a year.
Refer to the information above.What is the length of a production cycle in days?

A)3)2
B)4)1
C)2)7
D)5)3
E)4)9

Question 13

Spoilage is considered to be a part of carrying cost.

Question 14

Use this information to answer the following questions.
A cake factory can produce cakes at the rate of 500 per day.The factory supplies its cakes to local grocery stores at a rate of 250 per day.The cost to prepare the equipment for producing the cakes is $20.Annual holding costs are $2 per cake.Assume that the factory operates 250 days a year.
Refer to the information above.What is the optimal EPQ?

A)1389
B)1425.68
C)1250.27
D)1000
E)1581.14

Question 15

If the standard deviation of demand is 10 and the desired service level is 0.90,then what is the safety stock?

A)9
B)10
C)12.8
D)16.5
E)23.3

Question 16

Use this information to answer the following questions.
A bakery buys sugar in 15-pound bags.The bakery uses 5000 bags of sugar each year.Carrying costs are $20 per bag per year.Ordering costs are estimated at $5 per order.Assume that the bakery is open 250 days a year and its daily demand is estimated at 20 bags.It takes 5 days for each order of sugar to be filled.
Refer to the information above.What is the Reorder point (ROP)?

A)20
B)100
C)5
D)500
E)15

Question 17

Use this information to answer the following questions.
A bakery buys sugar in 15-pound bags.The bakery uses 5000 bags of sugar each year.Carrying costs are $20 per bag per year.Ordering costs are estimated at $5 per order.Assume that the bakery is open 250 days a year and its daily demand is estimated at 20 bags.It takes 5 days for each order of sugar to be filled.
Refer to the information above.What is the optimal number of orders per year?

A)200
B)100
C)500
D)300
E)400

Question 18

The Economic Order Quantity (EOQ)formula assumes that all input data are known with certainty.

Question 19

Use this information to answer the following questions.
A bakery buys sugar in 15-pound bags.The bakery uses 5000 bags of sugar each year.Carrying costs are $20 per bag per year.Ordering costs are estimated at $5 per order.Assume that the bakery is open 250 days a year and its daily demand is estimated at 20 bags.It takes 5 days for each order of sugar to be filled.
Refer to the information above.What are the total annual holding costs?

A)$500
B)$1000
C)$20
D)$750
E)$250

Question 20

Use this information to answer the following questions.
A bakery buys sugar in 15-pound bags.The bakery uses 5000 bags of sugar each year.Carrying costs are $20 per bag per year.Ordering costs are estimated at $5 per order.Assume that the bakery is open 250 days a year and its daily demand is estimated at 20 bags.It takes 5 days for each order of sugar to be filled.
Refer to the information above.What is the total cost of ordering and carrying sugar?

A)$50
B)$100
C)$25
D)$1000
E)$500

Question 21

The EPQ model is primarily concerned with the timing of orders.

Question 22

Safety stock is usually held only when demand is uncertain.

Question 23

The C group items in ABC analysis require closer monitoring than the A group items.

Question 24

Quantity discounts give customers a price incentive to buy in larger quantities.

Question 25

When demand is constant,the Reorder point (ROP)is a function of demand and lead time.

Question 26

The Economic Production Quantity (EPQ)model assumes instantaneous replenishment.

Question 27

In the ABC analysis,the A group items are the least critical.

Question 28

In the Economic Order Quantity (EOQ)model,the maximum amount of inventory held in a given cycle is the optimal order quantity Q*.

Question 29

A shoe store sells 90 pairs of shoes each month.Each pair carried in stock incurs a holding cost of $10 per month.Each order costs approximately $25 in shipping and receiving.
a.What is the optimal EOQ?
b.What is the optimal number of orders per month?
c.What are the total ordering and carrying costs?

Question 30

The average inventory level is inversely/negatively related to order size.

Question 31

A computer manufacturer can produce laptops at the rate of 100 per day.The manufacturer supplies its laptops to various computer retail outlets at a rate 65 per day.Set up cost for a production run is $500.Carrying cost is $125 per laptop a year.Assume the manufacturer operates 300 days a year.
a.What is the optimal production run size?
b.What is the minimum total annual cost for carrying and set up?
c.What is the length of a production run?

Question 32

A small toy store has organized its 10 inventory items on an annual dollar-volume basis.The information below shows the items,their annual demands,and unit costs.How should the store classify these items into groups A,B,and C?

Question 33

Loss of goodwill must be included in stockout costs.

Question 34

A local ice cream shop sells 10,000 cones of vanilla-flavored ice cream each year.The cones are ordered from an outside supplier and it takes 5 days for each shipment of cones to arrive.Ordering costs are estimated at $15 per order.Carrying costs are $5 per cone per year.Assume that the ice cream shop is open 250 days a year.
a.What is the optimal EOQ for ice cream cones?
b.What is the total cost of ordering and carrying the ice cream cones?
c.What is the maximum inventory of cones held in a given ordering cycle?
d.What is the average inventory held in a given ordering cycle?
e.What is the reorder point (ROP)?

Question 35

In a quantity discount model,the choice of order quantity must be the EOQ.

Question 36

Inspection of purchased goods for quality upon arrival is an example of holding cost.

Question 37

A local post office uses 10,000 boxes a year.Carrying costs are 15 cents per box a year,and ordering costs are $20 per order.The following price schedule applies.What is the optimal order quantity?

Question 38

The optimal Economic Production Quantity (EPQ)minimizes the sum of set up and carrying costs.

Question 39

A grocery store is aiming for a 95% service level for 1 gallon bottles of whole milk.The mean demand during lead time is 200 with a standard deviation of 40.Milk has a carrying cost of $0.50 per unit per year.How much safety stock should the grocery store maintain in milk and what is the reorder point?