Question 1

In ABC Printing, Queen's black is a popular input with an annual demand of 50,000 gallons. Ordering cost of $50 per order, and the holding cost is $5 per unit per year; the economic order quantity is 1000. Hence during the year, they used 1000 as the order quantity. An audit of the costs revealed that the true ordering cost was only $25 and the true holding cost was $10 per gallon per year. The correct order quantity would have been 500. How much did ABC lose due to incorrect cost information during the year?

Accepted Answer

The loss is calculated by comparing the total cost using the incorrect and correct order quantities. The total cost difference is $1250.

Question 2

Demand for organic super fresh lettuce in a local super market is 5 with probability 0.2; 6 with probability 0.3; 7 with probability 0.4 or 8 with probability 0.1. Unsold lettuce are given to a food bank with a salvage value of $1.00 per lettuce. Cost of the lettuce is $3:00 per unit. Selling price is $6:00 per unit. Using single period model, what is the optimal order quantity in number of units of lettuce the super market should use?

Accepted Answer

The optimal order quantity is determined by the critical ratio, which is the ratio of the cost of underage to the sum of the cost of underage and overage. The critical ratio here is (6-3)/(6-3+3-1) = 0.6. The cumulative probability that is closest to 0.6 is 0.6 (0.2+0.3+0.4), which corresponds to an order quantity of 7.

Question 3

The 80-20 rule, that is the logic of the few having the greatest importance and the many having little importance has been broadened to include inventory situations. The term often used to refer to this logic is called what?

Accepted Answer

The 80-20 rule is commonly known as the Pareto Principle, which states that roughly 80% of effects come from 20% of causes. This principle is often applied to inventory management and other areas to identify the most important factors.

Question 4

Daily demand for fresh cauliflower in the ZZ-Warehouse store follows normal distribution with mean 100 cartons and s.d. 20 cartons. The ZZ-Warehouse buys at a cost of $50.00 per carton, sells it for $70.00 per carton. Unsold cartons are sold for $20.00 per carton. What is the optimal order quantity, using the single period model?

Accepted Answer

The answer of Daily demand for fresh cauliflower in the...

Question 5

Using the simple order quantity model in an inventory control problem, Kathy calculated the order quantity to be 1000 units. In a review, she found out that the demand is actually double that of the quantity she had used and the holding cost is only half that of the value she used, The new economic order quantity using the correct data will be:

Accepted Answer

The answer of Using the simple order quantity model in...

Quiz 11: Inventory Management

The 80-20 rule, that is the logic of the few having the greatest importance and the many having little importance has been broadened to include inventory situations. The term often used to refer to this logic is called what?