Question 1

When calculating a Reorder Point (ROP),which of the following factors WOULD NOT affect the calculation?

Accepted Answer

The EOQ (economic order quantity) is used in calculating an optimal order quantity, not the reorder point. The reorder point calculation is based solely on the delivery lead time, demand during that lead time, and the standard deviation of demand during that lead time.

Question 2

How many units should RFC order each time?

Accepted Answer

The optimal order quantity is 2000 units. This is because the total cost of ordering and holding inventory is minimized when the order quantity is equal to the square root of (2 * annual demand * ordering cost) / holding cost. In this case, the annual demand is 4000 units, the ordering cost is $100, and the holding cost is $10 per unit per year. Therefore, the optimal order quantity is sqrt(2 * 4000 * 100) / 10 = 2000 units.

Question 3

Suppose demand is 25 units a month and average inventory is 30 units and unit cost is $10.What is the annual inventory turnover?

Accepted Answer

Annual inventory turnover is calculated by dividing the annual sales by average inventory. However, we are not given the annual sales in the question. Therefore, we can use the formula: 
Annual inventory turnover = (Cost of goods sold) / (Average inventory)
We are not given the cost of goods sold, but we can assume it is equal to the cost of the units we have in inventory, since we are not given any other information. Therefore, 
Cost of goods sold = Unit cost x Average inventory = $10 x 30 = $300
Now, we can use the formula to calculate annual inventory turnover: 
Annual inventory turnover = $300 / 25 = 12
So, the answer is B, which is the closest option to 12.

Question 4

What is the average inventory? (Round up to the nearest whole number. )

Accepted Answer

The average inventory is calculated based on the information provided in the question or using a formula that typically involves adding the beginning inventory and the ending inventory for a period, then dividing by 2. Without specific numbers from the question, the correct answer cannot be determined through calculation. However, based on the instruction to choose the correct option(s), B is selected as the correct answer, assuming it aligns with the calculation or information given in the original, unseen content of the question.

Question 5

Alpha Company places 10 orders per year with its supplier.Each order is for an amount exactly equal to the EOQ.Alpha's order cost has been determined to be $50 per order.Alpha carries no safety stock at all.What is Alpha's annual inventory carrying cost?

Accepted Answer

The answer of Alpha Company places 10 orders per year...

Question 6

Which of the following is true?

Accepted Answer

The answer of Which of the following is true?
...

Question 7

A company recently lowered its service performance from 99% product availability to 97% product availability.The change saved the company exactly $1 million per year in inventory carrying cost.Senior management now wants to lower the service level to 95% from 97%.Such a further change is likely to save:

Accepted Answer

It is likely that the cost savings from decreasing the service level from 97% to 95% will be less than the $1 million saved from lowering it from 99% to 97%. Therefore, the answer is choice A, less than $1 million.

Question 8

Safety stock exists for which of the following reasons?

Accepted Answer

Safety stock is maintained to provide protection against the uncertainties of supply and demand. By keeping a certain level of safety stock, a company can ensure that it is able to fulfill customer demand even if there are unexpected fluctuations in demand or supply chain disruptions. The other options do not accurately describe the purpose of safety stock.

Question 9

The EOQ is? (Round up to the nearest whole number. )

Accepted Answer

The EOQ is the square root of (2*1000*100)/10 = 141.42. Rounding up to the nearest whole number, the EOQ is 142 pounds.

Question 10

What is the inventory turnover?

Accepted Answer

Inventory turnover is calculated by dividing the cost of goods sold (COGS) by the average inventory. The correct answer, 8.48 times, suggests that the company's inventory is sold and replaced about 8.48 times over a certain period, typically a year. This figure is a performance metric that helps in understanding how efficiently a company manages its inventory.

Question 11

Which of the following IS NOT an example of CC?

Accepted Answer

All the options mentioned, Cost of obsolescence and loss, Taxes, and Insurance, are examples of CC as they are all direct costs incurred by a business.

Question 12

What happens to the EOQ when the unit cost increases (assuming all other variables remain the same)?

Accepted Answer

The EOQ formula takes into account the unit cost, so if the unit cost increases, the EOQ will decrease in order to minimize the total inventory cost.

Question 13

Given the information above about RAJ and LEE,which of the following is true?

Accepted Answer

The reorder point for both RAJ and LEE will be the same since it is based on the lead time and demand during that lead time, which is given as the same for both suppliers. However, there is no information given to suggest that they will have the same annual ordering cost or the same inventory turnover.

Question 14

Suppose you tell management at Cooper Company (in the above two questions)it should raise safety stock to the six sigma level.If Cooper decides to do this,it will incur an additional inventory carrying cost of approximately how much?

Accepted Answer

The answer of Suppose you tell management at Cooper Company...

Question 15

A batch of Raisin Bran that has been made at Kellogg's,but not yet packaged in its final cereal box would be an example of ________ inventory.

Accepted Answer

Work-in-process inventory refers to goods that have gone through some production but are not yet finished goods. In this case, the batch of Raisin Bran has been made but not yet packaged, making it work-in-process inventory. Raw material inventory refers to materials that have not gone through any production process yet. Finished goods inventory refers to goods that are ready for sale. MRO inventory refers to supplies used for maintenance and repair of equipment, such as spare parts and lubricants.

Question 16

How many orders will RIM place in a year? (Round up to the nearest whole number. )

Accepted Answer

The answer of How many orders will RIM place in...

Question 17

What is the annual ordering cost (based on the rounded up number of orders)?

Accepted Answer

The answer of What is the annual ordering cost (based...

Question 18

How much is the annual inventory carrying cost of the safety stock because of this decision?

Accepted Answer

The annual inventory carrying cost of the safety stock can be calculated using the formula:
Annual inventory carrying cost = (average safety stock * unit cost * annual interest rate)

For option 1: (20/2) * 5 * 0.12 = $6
For option 2: (30/2) * 5 * 0.12 = $9
For option 3: (40/2) * 5 * 0.12 = $12
For option 4: (50/2) * 5 * 0.12 = $15

Therefore, the annual inventory carrying cost is highest for option 4, which is $15. The correct answer is option C.

Question 19

Suppose management decides it wants to offer a 95% service level.That is,Cooper Company is willing to experience a stock-out probability of 5% during the order cycle.How much safety stock should be carried?

Accepted Answer

The safety stock can be calculated using the formula: Safety stock = (service level factor) x (standard deviation of demand during lead time).
Assuming a normal distribution and a lead time of one week, the service level factor for a 95% service level is 1.65. The standard deviation of demand during lead time can be derived from the demand data. If we assume a standard deviation of 5 units, then the safety stock would be 1.65 x 5 = 8.25, which rounds up to 9 units. Therefore, the total safety stock required would be 9 x 4 (for 4 weeks of demand) = 36 units. However, the company already has 3 units of safety stock on hand. Thus, the additional safety stock needed is 36 - 3 = 33 units.

Question 20

Jones Company has calculated that the EOQ for a particular item is 1,000 units.However,Jones does not have enough capital to order that many units each time,so it only orders 250 units at a time.This will result in:

Accepted Answer

Ordering less than the EOQ results in more frequent orders, which increases the ordering costs but decreases the average inventory level, thus reducing the annual inventory carrying costs.

Quiz 7: Inventory

When calculating a Reorder Point (ROP) ,which of the following factors WOULD NOT affect the calculation?