Question 1

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

Accepted Answer

The production order quantity model allows for the order quantity to be received in batches, rather than all at once, which relaxes the assumption that all the order quantity is received at one time. Option A is false because the model can apply to outsourced production as well. Option C is false because the demand rate is assumed to be constant in this model. Option D is false because the model minimizes the total cost of production and inventory, not just production costs. Option E is false because minimizing inventory is not the primary objective of this model.

Question 2

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

Accepted Answer

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

Question 3

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

EOQ = sqrt((2DS)/(h))
where D = annual demand
S = ordering cost per order
h = holding cost per unit
So, if the ordering cost decreases from $90 to $10, S decreases by a factor of 9. 
Plugging this into the EOQ formula we get:
EOQ = sqrt((2DS)/(h)) = sqrt((2D*9S)/(h)) = sqrt((2D*81/9S)/(h)) = sqrt((2D*9S)/(h))/3 
So the revised EOQ is 1/3 the original EOQ, i.e. one-third as large.

Question 4

Which of the following statements about quantity discounts is FALSE?

Accepted Answer

The statement "The larger the annual demand, the less attractive a discount schedule will be" is false. In fact, larger annual demand can make a discount schedule more attractive as it can lead to greater savings from ordering larger quantities.

Question 5

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

Accepted Answer

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

Question 6

In the EOQ model,for a given level of demand,annual holding cost is larger as the order quantity is ________.

Accepted Answer

The answer of In the EOQ model,for a given level...

Question 7

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.

Question 8

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 9

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

The answer of A production order quantity problem has a...

Question 10

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 11

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 12

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 13

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

We can use the economic order quantity (EOQ) formula to find the optimal order quantity:
EOQ = sqrt((2DS)/H)
Where:
D = annual demand = 4000 
S = ordering cost = $20 
H = holding cost per unit per year = $4 
Plugging in these values, we get:
EOQ = sqrt((2*4000*20)/4) = 200 units 
Therefore, ordering 200 units per order will minimize the total cost of inventory management.

Question 14

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

Accepted Answer

The statement "If annual demand were to double, the EOQ would also double" is false. The EOQ is determined by the square root of the product of the demand, setup cost, and holding cost. If the demand doubles, the EOQ would increase by the square root of 2, not double.

Question 15

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 16

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 explicitly states that when the inventory level goes down to 14 gearboxes, an order of 100 gearboxes will be placed. Therefore, 14 is the reorder point (the inventory level at which an order is triggered) and 100 is the order quantity (the amount ordered when the reorder point is reached). Additionally, the statement does not provide any information about the demand during lead time, safety stock, or a specific point in the inventory replenishment process.

Question 17

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 18

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

Accepted Answer

In the basic EOQ model, the EOQ formula is the square root of [(2DS)/H], where D is demand, S is setup or ordering cost, and H is holding or carrying cost. If the cost of placing an order doubles (meaning S doubles), the square root of [(2DS)/H] will increase. Plugging in the numbers, the EOQ will increase by about 41%. Therefore, the correct choice is A.

Question 19

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,
EOQ = sqrt((2DS)/H)
Here, 
D = 6000 (Demand per year)
S = $100 (Ordering cost)
H = $5/month (Holding cost)
So, 
EOQ = sqrt((2*6000*100)/5)
EOQ = sqrt(240000)
EOQ = 154.92 (approx)
Hence, the economic order quantity is 141 (rounded down to the nearest integer). Thus, the best choice is C.

Question 20

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

Accepted Answer

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

Quiz 12: Inventory Management