Question 1

Which of the following tells management "when" to order?
A)safety stock level
B)order point
C)the economic order quantity
D)the Pareto inventory analysis

Accepted Answer

The order point is the level of inventory at which a new order needs to be placed. It is determined by considering factors such as lead time, demand rate, and safety stock level. The order point tells management when to order.

Question 2

A decrease in the lead time would reduce the
A)order point.
B)safety stock.
C)economic order quantity.
D)ordering costs.

Accepted Answer

The answer of A decrease in the lead time would...

Question 3

If a company carries safety stock and its annual carrying costs per unit are $0.30,what formula yields the total annual carrying costs?
A)$0.30 ´ [(EOQ/2)+ Safety stock)]
B)$0.30 ´ (EOQ + Safety stock)
C)$0.30 ´ [(EOQ ´ 2)+ Safety stock)]
D)$0.30 ´ (EOQ - Safety stock)

Accepted Answer

The formula for total annual carrying costs with safety stock is: Carrying cost per unit x [(EOQ/2) + Safety stock]. Therefore, the correct answer is A.

Question 4

Hooper Corporation Hooper Corporation operates its factory 300 days per year.Its annual consumption of Material Y is 1,200,000 gallons.It carries a 10,000 gallon safety stock of Material Y and its lead time is 12 business days.
Refer to Hooper Corporation.What is the order point for Material Y?
A)10,000 gallons
B)38,000 gallons
C)48,000 gallons
D)58,000 gallons

Accepted Answer

The answer of Hooper Corporation Hooper Corporation operates its factory...

Question 5

Refer to Hunter Corporation.What are Hunter Corp.'s total annual ordering costs for Material A?
A)$6,000
B)$600
C)$125
D)$1,000

Accepted Answer

To calculate the total annual ordering cost, we need to divide the annual demand (500) by the order quantity (100) to determine the number of orders placed per year (5). Then, we need to multiply this by the cost of placing each order ($25). 
So, the total annual ordering cost for Material A is:
5 x $25 = $125

Question 6

Which of the following might be appropriate for items in the "C" category of a Pareto inventory analysis?
A)a red-line system
B)a two-bin system
C)a periodic inventory system
D)all of the above

Accepted Answer

In a Pareto inventory analysis, items in the "C" category are typically low-cost and high-volume. Systems like a red-line system, a two-bin system, and a periodic inventory system are all appropriate for managing these types of items, as they are designed to efficiently handle items that do not require constant monitoring or high investment.

Question 7

Royal Jewelry Corporation produces quality jewelry items for various retailers.For the coming year,it has estimated it will consume 500 ounces of gold.Its carrying costs for a year are $2 per ounce.No safety stock is maintained.If the EOQ is 100 ounces,what is the cost per order?
A)$40
B)$20
C)$5
D)$25

Accepted Answer

EOQ (economic order quantity) = √ [(2 x demand x setup cost) / (holding cost per unit)]
Here, demand = 500 ounces, holding cost per unit = $2, EOQ =100 ounces. 
Setting up the order incurs a cost, and since there are 5 orders (500/100), the cost per order is: 
= Total setup cost / number of orders
= [(demand/EOQ) x setup cost] / (demand/EOQ)
= (500/100) x $100 / (500/100)
= $100
Therefore, the cost per order is $100/5 = $20. 
Hence, the best choice is B.

Question 8

A firm estimates that its annual carrying cost for material X is $.30 per lb.If the firm requires 50,000 lbs.per year,and ordering costs are $100 per order,what is the EOQ (rounded to the nearest pound)?
A)5,774 lbs.
B)4,082 lbs.
C)1,732 lbs.
D)1,225 lbs.

Accepted Answer

The Economic Order Quantity (EOQ) formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the demand (50,000 lbs/year), $S$ is the ordering cost ($100/order), and $H$ is the holding cost per unit per period ($.30/lb/year). Plugging in the values: $\sqrt{\frac{2*50000*100}{0.30}} \approx 5773.50$, which rounds to 5,774 lbs.

Question 9

A company annually consumes 10,000 units of Part
C The carrying cost of this part is $2 per year and the ordering costs are $100.The company uses an order quantity of 500 units.By how much could the company reduce its total costs if it purchased the economic order quantity instead of 500 units?
A)$500
B)$2,000
C)$2,500
D)$0

Accepted Answer

The Economic Order Quantity (EOQ) formula is used to minimize the total inventory costs, which include ordering and carrying costs. The EOQ is calculated as √((2DS)/H), where D is the demand (10,000 units), S is the ordering cost ($100), and H is the carrying cost per unit ($2). Calculating EOQ gives approximately 1,000 units. The current order quantity is 500 units. By switching to EOQ, the company can reduce its total costs by $500.

Question 10

Royal Jewelry Corporation produces quality jewelry items for various retailers.For the coming year,it has estimated it will consume 500 ounces of gold.Its carrying costs for a year are $2 per ounce.No safety stock is maintained.If the EOQ is 100 ounces,what would be the estimate for Royal Jewelry' total carrying costs for the coming year?
A)$200
B)$250
C)$100
D)$1,000

Accepted Answer

The answer of Royal Jewelry Corporation produces quality jewelry items...

Question 11

The size of the safety stock is directly affected by all of the following except the
A)cost of a stockout.
B)probability of a stockout.
C)carrying cost of stock.
D)economic order quantity.

Accepted Answer

The size of the safety stock is not directly affected by the economic order quantity. The economic order quantity determines the order size and frequency, while the size of the safety stock is determined independently as a buffer to account for variations in demand and lead times. The other options, cost of stockout, probability of stockout, and carrying cost of stock, all directly affect the size of the safety stock.

Question 12

A company has estimated its economic order quantity for Part A at 2,400 units for the coming year.If ordering costs are $200 and carrying costs are $.50 per unit per year,what is the estimated total annual usage?
A)6,000 units
B)28,800 units
C)7,200 units
D)2,400 units

Accepted Answer

The answer of A company has estimated its economic order...

Question 13

Clear Vision Corporation Clear Vision Corporation manufactures various glass products including a car window.The setup cost to produce the car window is $1,200.The cost to carry a window in inventory is $3 per year.Annual demand for the car window is 12,000 units.
Refer to Clear Vision Corporation.What is the most economical production run (rounded to the nearest unit)?
A)6,000 units
B)3,000 units
C)9,295 units
D)3,098 units

Accepted Answer

The most economical production run can be calculated using the Economic Production Quantity (EPQ) formula. The EPQ formula is similar to the Economic Order Quantity (EOQ) formula but is used for production runs. The formula is: EPQ = sqrt((2 * Demand * Setup Cost) / Holding Cost). Plugging in the values: EPQ = sqrt((2 * 12000 * 1200) / 3) = 3,098 units.

Question 14

If no safety stock is carried,the average inventory is equal to the
A)order point/2.
B)order point ´ 2.
C)economic order quantity/2.
D)economic order quantity ´ 2.

Accepted Answer

The average inventory without safety stock is equal to half of the economic order quantity. This is because the inventory level will fluctuate between zero (when a new order is placed) and the economic order quantity (when the next order arrives). Therefore, the average inventory level will be halfway between these two points.

Question 15

A company annually consumes 10,000 units of Part CThe carrying cost of this part is $2 per year and the ordering costs are $100.The company uses an order quantity of 500 units.If the company operates 200 days per year,and the lead time for ordering Part C is 5 days,what is the order point?
A)250 units
B)1,000 units
C)500 units
D)2,000 units

Accepted Answer

Order point = (average daily usage x lead time) + safety stock

Average daily usage = Annual usage / number of working days per year
= 10,000 units / 200 days
= 50 units per day

Lead time = 5 days

Safety stock = z-score x standard deviation of demand during lead time x average daily usage
Since the demand during lead time is not given, we assume it to be the same as the average daily usage.
z-score for 95% service level = 1.65 (from standard normal distribution table)
Standard deviation of demand during lead time = square root of lead time x variance of daily demand
Variance of daily demand = average daily demand squared = 50^2 = 2500
Standard deviation of demand during lead time = square root of 5 x 2500 = 111.8 (approx)

Substituting these values in the formula for safety stock, we get:
Safety stock = 1.65 x 111.8 x 50 = 9,185 (approx)

Order point = (50 x 5) + 9,185
= 9,435

Rounding off to the nearest multiple of the order quantity (500), we get:
Order point = 9,500
Since this is greater than the order quantity, we take the next multiple of 500 as the order point.
Order point = 10,000 - 500 (to avoid stockout)
= 9,500
Therefore, the best choice is A (250 units), as it is less than the calculated order point.

Question 16

Which of the following affects the order point?
A)daily usage
B)lead time
C)safety stock
D)all of the above

Accepted Answer

All of the above factors (daily usage, lead time, and safety stock) affect the order point. Daily usage and lead time determine how much inventory needs to be on hand before an order needs to be placed, while safety stock provides a cushion in case of unexpected demand or delays in receiving orders. Therefore, all of these factors must be considered when determining the appropriate order point level.

Question 17

Clear Vision Corporation Clear Vision Corporation manufactures various glass products including a car window.The setup cost to produce the car window is $1,200.The cost to carry a window in inventory is $3 per year.Annual demand for the car window is 12,000 units.
Refer to Clear Vision Corporation.If the annual demand for the car window was to increase to 15,000 units,
A)the number of setups would decrease.
B)the total carrying costs would increase.
C)the economic order quantity would decline.
D)all of the above would occur.

Accepted Answer

When the annual demand increases, the total carrying costs would increase because more inventory would be held to meet the higher demand.

Question 18

Hunter Corporation Hunter Corporation's EOQ for Material A is 500 units.This EOQ is based on:
 Refer to Hunter Corporation.What is the annual carrying cost per unit for Material A?
A)$0.50
B)$2.00
C)$2.50
D)$5.00

Accepted Answer

The answer of Hunter Corporation Hunter Corporation's EOQ for Material...

Question 19

The role of safety stock in an organization is to
A)reduce the lead time for an order to be received.
B)reduce the probability of a stockout.
C)reduce the order point.
D)decrease the economic order quantity.

Accepted Answer

Safety stock is inventory held to reduce the risk of stockouts. It acts as a buffer between forecasted demand and actual demand, reducing the probability of stockouts. It does not reduce lead time or order point, nor does it decrease the economic order quantity.

Question 20

The optimal size of the safety stock is defined by the point where the
A)costs of carrying the safety stock equal stockout costs.
B)setup costs equal stockout costs.
C)ordering costs equal stockout costs.
D)reorder point equals safety stock.

Accepted Answer

The optimal size of safety stock occurs when the costs of carrying the safety stock equal the costs of experiencing stockouts. This means that the cost of carrying additional inventory is offset by the cost savings of avoiding stockouts. Therefore, choice A is the best answer.

Quiz 18: Inventory and Production Management

Which of the following tells management "when" to order?

A decrease in the lead time would reduce the

If a company carries safety stock and its annual carrying costs per unit are $0.30,what formula yields the total annual carrying costs?

Hooper Corporation Hooper Corporation operates its factory 300 days per year.Its annual consumption of Material Y is 1,200,000 gallons.It carries a 10,000 gallon safety stock of Material Y and its lead time is 12 business days. Refer to Hooper Corporation.What is the order point for Material Y?

Refer to Hunter Corporation.What are Hunter Corp.'s total annual ordering costs for Material A?

Which of the following might be appropriate for items in the "C" category of a Pareto inventory analysis?

Royal Jewelry Corporation produces quality jewelry items for various retailers.For the coming year,it has estimated it will consume 500 ounces of gold.Its carrying costs for a year are $2 per ounce.No safety stock is maintained.If the EOQ is 100 ounces,what is the cost per order?

A firm estimates that its annual carrying cost for material X is $.30 per lb.If the firm requires 50,000 lbs.per year,and ordering costs are $100 per order,what is the EOQ (rounded to the nearest pound) ?

A company annually consumes 10,000 units of Part C The carrying cost of this part is $2 per year and the ordering costs are $100.The company uses an order quantity of 500 units.By how much could the company reduce its total costs if it purchased the economic order quantity instead of 500 units?

The size of the safety stock is directly affected by all of the following except the

A company has estimated its economic order quantity for Part A at 2,400 units for the coming year.If ordering costs are $200 and carrying costs are $.50 per unit per year,what is the estimated total annual usage?

If no safety stock is carried,the average inventory is equal to the

A company annually consumes 10,000 units of Part CThe carrying cost of this part is $2 per year and the ordering costs are $100.The company uses an order quantity of 500 units.If the company operates 200 days per year,and the lead time for ordering Part C is 5 days,what is the order point?

Which of the following affects the order point?

Hunter Corporation Hunter Corporation's EOQ for Material A is 500 units.This EOQ is based on: Refer to Hunter Corporation.What is the annual carrying cost per unit for Material A?

The role of safety stock in an organization is to

The optimal size of the safety stock is defined by the point where the