Question 1

The Franklin County Hospital is currently using a continuous review system to control its inventory.One of the items in inventory is an elastic band.The average demand for this item is 200 boxes per week,and the standard deviation in weekly demand is 50 boxes.If the lead time is 3 weeks and the hospital wants a 99 percent cycle-service level,what is the reorder point for this item? A normal table is appended to this exam.
A) less than or equal to 650 boxes
B) greater than 650 boxes but less than or equal to 750 boxes
C) greater than 750 boxes but less than or equal to 850 boxes
D) greater than 850 boxes

Accepted Answer

Reorder point = (Average demand during lead time) + (Z-score for desired service level x Standard deviation of demand during lead time)

Average demand during lead time = Average weekly demand x Lead time
= 200 boxes/week x 3 weeks
= 600 boxes

Standard deviation of demand during lead time = Standard deviation of weekly demand x Square root of lead time
= 50 boxes/week x Square root of 3
= 86.60 boxes

Z-score for 99 percent cycle-service level = 2.33 (from the normal table)

Reorder point = 600 boxes + (2.33 x 86.60 boxes)
= 810.56 boxes

Therefore, the reorder point for elastic band is greater than 750 boxes but less than or equal to 850 boxes.

Question 2

Table 5.5
You are the operations manager of a firm that uses the continuous review inventory control system. Suppose the firm operates 52 weeks a year and has the following characteristics for its primary item:
Demand = 25,000 units/year
Ordering cost = $30/order
Holding cost = $8/unit/year
Lead time = 2 weeks
Standard deviation in weekly demand = 100 units
You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.5.What safety stock level provides a 95 percent cycle-service level?
A) less than or equal to 150 units
B) greater than 150 but less than or equal to 200 units
C) greater than 200 but less than or equal to 250 units
D) greater than 250 units

Accepted Answer

The answer of Table 5.5
You are the operations manager of...

Question 3

Table 5.2
Consider the following data for an independent demand item maintained by Vicki Crittenden, the proprietor of a local auto repair shop:
Weekly demand 	= 50 units
Ordering cost 	= $8/order
Holding cost 	= $4/order
Weeks in a year 	= 50
-Use the information in Table 5.2.Due to new ordering procedures initiated by Crittenden,the ordering cost is dropping to $4/order.At the same time,the weekly demand increases to 64 units per week due to an increase in business.What effect do these changes have on the EOQ quantity for this item?
A) The EOQ quantity remains unchanged.
B) The EOQ quantity increases by 20 percent.
C) The EOQ quantity decreases by 20 percent.
D) Sufficient information is not available for answering this question.

Accepted Answer

The EOQ quantity decreases by 20 percent.The EOQ formula is:EOQ = sqrt((2*D*O)/H)where:D = demand per weekO = ordering cost per orderH = holding cost per unit per weekIn this case, the demand has increased from 50 units per week to 64 units per week, and the ordering cost has decreased from $8 per order to $4 per order. The holding cost remains the same at $4 per unit per week.Plugging these values into the EOQ formula, we get:EOQ = sqrt((2*64*4)/4) = 32 unitsThis is a decrease of 20 percent from the original EOQ quantity of 40 units.

Question 4

For an item under continuous review,the on-hand inventory is only 20 units and the reorder point R is 100 units.There are no backorders,but there is one open order for 90 units.Which one of the following statements is TRUE?
A) There is no need to order at the present time.
B) The current inventory position is 100 units.
C) An order should be placed now for 20 units.
D) An order should be placed now for 10 units.

Accepted Answer

The answer of For an item under continuous review,the on-hand...

Question 5

The percentage of demand for an item that is met from on-hand inventory,relative to the total demand for that item is referred to as the
A) safety stock ratio.
B) cycle service ratio.
C) item fill rate.
D) reorder rate.

Accepted Answer

The percentage of demand for an item that is met from on-hand inventory, relative to the total demand for that item is referred to as the item fill rate. Safety stock ratio is the ratio of safety stock to average demand, cycle service ratio is the ratio of demand during the lead time to the amount of inventory on hand, and the reorder rate is the rate at which inventory needs to be replenished. None of these options fully capture the definition of item fill rate.

Question 6

Table 5.4
A company operating under a continuous review system has an average demand of 50 units per week for the item it produces. The standard deviation in weekly demand is 20 units. The lead time for the item is 6 weeks, and it costs the company $30 to process each order. The holding cost for each unit is $10 per year. The company operates 52 weeks per year. You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.4.What is the economic order quantity (EOQ)for this item?
A) less than or equal to 175 units
B) greater than 175 units but less than or equal to 200 units
C) greater than 200 units but less than or equal to 225 units
D) greater than 225 units

Accepted Answer

The answer of Table 5.4
A company operating under a continuous...

Question 7

Table 5.3
The Medfield Import Autoparts Company imports and sells standard air filters for most Japanese cars, and it operates under the continuous review system. The average demand for this item is 1200 units per month (14,400 per year), and the standard deviation in monthly demand is 250 units. It costs the company $225 to process each order, and the lead time is 2 months. The holding cost for one unit is $0.50 per year, and the company policy is to maintain a 95 percent cycle-service level. You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.3.What is the reorder point R to satisfy a 95 percent cycle-service level?
A) less than or equal to 2800 units
B) greater than 2800 units but less than or equal to 2900 units
C) greater than 2900 units but less than or equal to 3000 units
D) greater than 3000 units

Accepted Answer

To calculate the reorder point R, we use the formula R = dL + zσL, where d = average demand per month (1200 units), L = lead time (2 months), σ = standard deviation in monthly demand (250 units), and z = number of standard deviations from the mean corresponding to the desired cycle-service level (for a 95 percent cycle-service level, z = 1.64). 
Plugging in the values, we get R = (1200)(2) + (1.64)(250)(√2) = 2976.9, which rounds to 2900. Therefore, the reorder point R is greater than 2900 units but less than or equal to 3000 units, making the best choice C.

Question 8

Sark Incorporated is out of stock for a key item,which has a backorder of 200 units.An open order of 750 units is scheduled for arrival on the following Monday.What is the current inventory position at Sark?
A) less than or equal to 0 units
B) greater than 0 but less than or equal to 500 units
C) greater than 500 but less than or equal to 750 units
D) greater than 750 units

Accepted Answer

The answer of Sark Incorporated is out of stock for...

Question 9

Table 5.2
Consider the following data for an independent demand item maintained by Vicki Crittenden, the proprietor of a local auto repair shop:
Weekly demand 	= 50 units
Ordering cost 	= $8/order
Holding cost 	= $4/order
Weeks in a year 	= 50
-Use the information in Table 5.2.If Crittenden uses the EOQ model,how frequently must she place orders for this item?
A) every week
B) every 2 weeks
C) every 3 weeks
D) every 4 weeks

Accepted Answer

EOQ formula = sqrt((2DS) / H)
Where, D = Weekly demand x Weeks in a year (50 x 50 = 2500)
S = Ordering cost per order ($8)
H = Holding cost per order ($4)
Plugging in the values, we get:
EOQ = sqrt((2 x 2500 x 8) / 4) = 100
This means that Crittenden should place an order for 100 units at a time, instead of ordering every week. The frequency of ordering can be calculated as:
Frequency = (annual demand) / (EOQ) = 2500 / 100 = 25
Therefore, she should place orders every 2 weeks.

Question 10

Table 5.4
A company operating under a continuous review system has an average demand of 50 units per week for the item it produces. The standard deviation in weekly demand is 20 units. The lead time for the item is 6 weeks, and it costs the company $30 to process each order. The holding cost for each unit is $10 per year. The company operates 52 weeks per year. You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.4.What is the desired safety stock level if the company has a policy of maintaining a 90 percent cycle-service level?
A) less than or equal to 50 units
B) greater than 50 units but less than or equal to 100 units
C) greater than 100 units but less than or equal to 150 units
D) greater than 150 units

Accepted Answer

The answer of Table 5.4
A company operating under a continuous...

Question 11

Table 5.1
Fred Jacobs, assistant manager of Home and Hearth, is reviewing the costs associated with the store's best-selling frying pan. The data available to Mr. Jacobs concerning this frying pan follow.
 $$\begin{array} { l l } 
\text { Demand } & = 20 \text { units/week } \
\text { Order cost } & = \$ 75 / \text { order } \
\text { Holding cost } & = \$ 15 / \text { unit/year }
\end{array}$$ 
Home and Hearth operates 50 weeks per year.
-Use the information in Table 6.1.Jacobs has recently learned of the economic order quantity in his business management class.If Home and Hearth implemented the EOQ,which of the following statements is TRUE?
A) The annual order cost and holding cost would increase.
B) The economic order quantity would be greater than 125 units.
C) The annual order cost would increase.
D) The annual holding cost would increase.

Accepted Answer

The EOQ is the optimal quantity to order to minimize the total inventory costs. The total inventory costs are the sum of the order costs and the holding costs. The order costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.In this case, the order cost is $75 per order, and the holding cost is $15 per unit per year. The demand is 20 units per week, and Home and Hearth operates 50 weeks per year. The EOQ is:```EOQ = sqrt((2 * D * O) / H)```where:* D = demand* O = order cost* H = holding costPlugging in the values, we get:```EOQ = sqrt((2 * 20 * 75) / 15) = 125 units```Therefore, the EOQ is 125 units. If Home and Hearth implemented the EOQ, the annual order cost would increase because they would be placing more orders. The annual holding cost would decrease because they would be holding less inventory.

Question 12

On-hand inventory of an item is only 10 units,and the reorder point R is 135.There are no backorders,and an open order of 110 units is scheduled to arrive next week.Which one of the following statements is TRUE?
A) There is no need to order at the present time.
B) A new order should be issued now.
C) The current inventory position for this item is 125 units.
D) The current inventory position for this item is 110 units.

Accepted Answer

The inventory position is calculated as on-hand inventory plus open orders minus backorders. Here, it is 10 (on-hand) + 110 (open order) - 0 (backorders) = 120 units. Since the reorder point is 135, a new order should be issued now.

Question 13

Table 5.1
Fred Jacobs, assistant manager of Home and Hearth, is reviewing the costs associated with the store's best-selling frying pan. The data available to Mr. Jacobs concerning this frying pan follow.
 $$\begin{array} { l l } 
\text { Demand } & = 20 \text { units/week } \
\text { Order cost } & = \$ 75 / \text { order } \
\text { Holding cost } & = \$ 15 / \text { unit/year }
\end{array}$$ 
Home and Hearth operates 50 weeks per year.
-Use the information in Table 5.1 The current order quantity is 125 units per order.What is the total annual ordering cost and holding cost for this order size?
A) less than or equal to $750
B) greater than $750 but less than or equal to $1000
C) greater than $1000 but less than or equal to $1250
D) greater than $1250

Accepted Answer

The answer of Table 5.1
Fred Jacobs, assistant manager of Home...

Question 14

Table 5.4
A company operating under a continuous review system has an average demand of 50 units per week for the item it produces. The standard deviation in weekly demand is 20 units. The lead time for the item is 6 weeks, and it costs the company $30 to process each order. The holding cost for each unit is $10 per year. The company operates 52 weeks per year. You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.4.What is the reorder point if the company finally decides to have a 95 percent cycle-service level?
A) less than or equal to 300 units
B) greater than 300 but less than or equal to 325 units
C) greater than 325 but less than or equal to 350 units
D) greater than 350 units

Accepted Answer

The answer of Table 5.4
A company operating under a continuous...

Question 15

Demand for an item is 1000 units per week,with a standard deviation in weekly demand of 60 units.The lead time is 2 weeks.The company wants to maintain an 88 percent cycle-service level.Assume demand during lead time to be normally distributed.For a continuous review system,what should be the reorder point? A normal table is attached at the end of this exam.
A) less than or equal to 2075
B) greater than 2075 but less than or equal to 2085
C) greater than 2085 but less than or equal to 2095
D) greater than 2095

Accepted Answer

The answer of Demand for an item is 1000 units...

Question 16

A neighborhood sportswear store sells a pair of Nike sneakers for $40.Due to the recent fitness craze,these shoes are in high demand: 50 pairs of shoes are sold per week.The ordering cost is $20/order,and the annual holding cost is 20 percent of selling price.If the store operates 52 weeks a year,what can you say about the current lot size of 235?
A) too large
B) too small
C) just right
D) cannot tell from the information given

Accepted Answer

The answer of A neighborhood sportswear store sells a pair...

Question 17

An item experiences an annual demand of 7200 units.It costs $8 to hold an item in inventory for one year and $16 to place an order.If the EOQ model is used,what is the time between orders? Assume that there are 52 business weeks in a year.
A) less than 1 week
B) greater than 1 week but less than or equal to 2 weeks
C) greater than 2 weeks but less than or equal to 3 weeks
D) greater than 3 weeks

Accepted Answer

Using the EOQ formula, we have:
EOQ = sqrt((2DS)/H)
Where:
D = annual demand = 7,200 units
S = ordering cost = $16
H = holding cost per unit per year = $8

EOQ = sqrt((2 * 7,200 * 16)/8) ≈ 302 units

The time between orders can be calculated as:
Time between orders = EOQ / demand per week
Demand per week = annual demand / number of weeks in a year = 7,200 / 52 ≈ 138.46 units per week

Time between orders = 302 / 138.46 ≈ 2.18 weeks

Therefore, the time between orders is greater than 1 week but less than or equal to 2 weeks (choice B).

Question 18

Table 5.3
The Medfield Import Autoparts Company imports and sells standard air filters for most Japanese cars, and it operates under the continuous review system. The average demand for this item is 1200 units per month (14,400 per year), and the standard deviation in monthly demand is 250 units. It costs the company $225 to process each order, and the lead time is 2 months. The holding cost for one unit is $0.50 per year, and the company policy is to maintain a 95 percent cycle-service level. You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.3.What is the reorder point R if the cycle-service level is brought down to 80 percent?
A) less than or equal to 2800 units
B) greater than 2800 units but less than or equal to 2900 units
C) greater than 2900 units but less than or equal to 3000 units
D) greater than 3000

Accepted Answer

The answer of Table 5.3
The Medfield Import Autoparts Company imports...

Question 19

Table 5.3
The Medfield Import Autoparts Company imports and sells standard air filters for most Japanese cars, and it operates under the continuous review system. The average demand for this item is 1200 units per month (14,400 per year), and the standard deviation in monthly demand is 250 units. It costs the company $225 to process each order, and the lead time is 2 months. The holding cost for one unit is $0.50 per year, and the company policy is to maintain a 95 percent cycle-service level. You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.3.What is the EOQ (economic order quantity)for this air filter?
A) less than or equal to 2,000 units
B) greater than 2,000 units but less than or equal to 3,000 units
C) greater than 3,000 units but less than or equal to 4,000 units
D) greater than 4,000 units

Accepted Answer

The answer of Table 5.3
The Medfield Import Autoparts Company imports...

Question 20

Wood County Hospital consumed 400 boxes of bandages per week last year.The price of bandages was $80 per box,and the hospital operates 52 weeks per year.The cost of processing an order was $64,and the cost of holding one box throughout a full year was 20 percent of the value of the material.
Last year the hospital ordered bandages,on average,once every two weeks,each time ordering 800 boxes.What extra cost did the hospital incur that could have been avoided if the EOQ concept had been applied?
A) less than $650
B) more than $650 and less than $1050
C) more than $1050 and less than $1450
D) more than $1450

Accepted Answer

The answer of Wood County Hospital consumed 400 boxes of...

Quiz 5: Inventory Management

For an item under continuous review,the on-hand inventory is only 20 units and the reorder point R is 100 units.There are no backorders,but there is one open order for 90 units.Which one of the following statements is TRUE?

The percentage of demand for an item that is met from on-hand inventory,relative to the total demand for that item is referred to as the

Sark Incorporated is out of stock for a key item,which has a backorder of 200 units.An open order of 750 units is scheduled for arrival on the following Monday.What is the current inventory position at Sark?

On-hand inventory of an item is only 10 units,and the reorder point R is 135.There are no backorders,and an open order of 110 units is scheduled to arrive next week.Which one of the following statements is TRUE?

An item experiences an annual demand of 7200 units.It costs $8 to hold an item in inventory for one year and $16 to place an order.If the EOQ model is used,what is the time between orders? Assume that there are 52 business weeks in a year.