Question 1

Due to unprecedented growth during the year, Flowers by Kelly decided to use some of its surplus cash to increase the size of several inventory order quantities that had been previously determined using an EOQ model.
Required:
Identify whether increasing the size of inventory orders will increase, decrease, or have no effect on each of the following items.
________a.Average inventory
________b.Cost of goods sold
________c.Number of orders per year
________d.Total annual carrying costs
________e.Total annual carrying and ordering costs
________f.Total annual ordering costs

Accepted Answer

The answer of Due to unprecedented growth during the year,...

Question 2

Companies use safety stock as a buffer against unexpected decreases in demand.

Accepted Answer

Companies use safety stock as a buffer against unexpected increases in demand.

Question 3

The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items:

Annual demand is 33,000 packages per year. The purchase price per package is $50.
What are the total relevant costs, assuming the quantity ordered equals 1500 units?
A) $16,405
B) $18,280
C) $16,780
D) $22,405

Accepted Answer

Unit carrying costs = ($50 × 0.15) + $8 = $15.50
Total relevant costs = 11ea1398_f0eb_992c_a1e4_c32c44469667_TB3027_11 = $22,405

Question 4

All of the following are reasons why a company might carry a safety stock except:
A) a buffer against unexpected increases in demand
B) a contingency against the uncertainty about lead time
C) a strategy to lower the carrying cost of inventory
D) a way of softening the impact of sudden unavailability of stock from suppliers

Accepted Answer

Carrying a safety stock would increase the carrying cost of inventory, whereas this option suggests that carrying a safety stock is a strategy to lower it. The other options (A, B, and D) are valid reasons for carrying a safety stock.

Question 5

The following information applies to Krynton Corp. which supplies microscopes to laboratories throughout the country. Krynton purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation.

What is the economic order quantity assuming each order was made at the economic-order-quantity amount?
A) 2057 units
B) 1000 units
C) 1108 units
D) 3200 units

Accepted Answer

EOQ = 18,000 / 18 = 1000

Question 6

If Premium Company has a safety stock of 480 units and the average daily demand is 68 units, how many days can be covered if the shipment from the supplier is delayed by 4 days?
A) 7 days
B) 4 days
C) 11 days
D) 3 days

Accepted Answer

Days that can be covered = 480 / 68 = 7 days

Question 7

The optimal safety-stock level is the quantity of safety stock that minimizes the sum of annual relevant stockout and ordering costs.

Accepted Answer

The optimal safety-stock level is the quantity of safety stock that minimizes the sum of annual relevant stockout and carrying costs.

Question 8

The following information applies to Krynton Corp. which supplies microscopes to laboratories throughout the country. Krynton purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation.

Assuming each order was made at the economic order quantity amount, what is the cost of placing an order?
A) $850 per order
B) $153 per order
C) $144 per order
D) $900 per order

Accepted Answer

Cost of placing an order = $2600 / 17 = $153 per order

Question 9

The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items:

Annual demand is 33,000 packages per year. The purchase price per package is $50.
What is the annual relevant carrying costs?
A) $16,308
B) $13,702
C) $10,491
D) $2894

Accepted Answer

Unit carrying costs = ($50 × 0.17) + $6 = $14.5
EOQ = 11ea1398_f0eb_7217_a1e4_e9ba5f0e399a_TB3027_11 = 1446.99 units
Annual relevant carrying costs = (1446.99 / 2) × $14.5 = $10,491

Question 10

The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items:

Annual demand is 33,000 packages per year. The purchase price per package is $49.
What are the relevant total costs at the economic order quantity?
A) $18,780
B) $20,387
C) $11,223
D) $12,694

Accepted Answer

Unit carrying costs = ($49 × 0.13) + $5 = $11.37
EOQ = 11ea1398_f0eb_9929_a1e4_4977b90336a8_TB3027_11 = 1651.74 units
Annual relevant carrying costs = (1651.74 / 2) × $11.37 = $9390
Annual relevant ordering costs = (33,000 / 1651.74) × $470 = $9390
Total costs at the economic order quantity = $9390 + $9390 = $18,780

Question 11

The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items:

Annual demand is 34,000 packages per year. The purchase price per package is $51.
What is the annual relevant ordering costs?
A) $6837
B) $10,428
C) $7873
D) $11,300

Accepted Answer

Unit carrying costs = ($51 × 0.13) + $5 = $11.63
EOQ = 11ea1398_f0eb_7215_a1e4_d164d9caee8f_TB3027_11 = 1793.27 units
Annual relevant ordering costs = (34,000 / 1793.27) × $550 = $10,428

Question 12

The following information applies to Krynton Corp. which supplies microscopes to laboratories throughout the country. Krynton purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation.

What are the annual relevant ordering costs, assuming that relevant total costs are minimal?
A) $824
B) $3719
C) $3500
D) $3294

Accepted Answer

In EOQ decision model, annual relevant ordering costs and annual relevant carrying costs are equal when relevant total costs are minimal at the EOQ.

Question 13

If Kenton Inc. has a safety stock of 215 units and the average weekly demand is 35 units, how many days can be covered if the shipment from the supplier is delayed by 16 days?
A) 16 days
B) 43 days
C) 59 days
D) 27 days

Accepted Answer

Days that can be covered = 215 / 35 = 6 weeks = 43 days

Question 14

The reorder point is the quantity level of inventory at which a new purchase order is made.

Accepted Answer

The statement is true. The reorder point is the level of inventory at which a new purchase order is triggered to ensure that sufficient stock is available to meet customer demand.

Question 15

The EOQ model is solved using calculus but the key intuition is that relevant total costs are minimized when relevant ordering costs equal relevant carrying costs.

Accepted Answer

This statement is true. The Economic Order Quantity (EOQ) model is based on the assumption that relevant total costs can be minimized by balancing ordering costs and carrying costs. This can be mathematically derived by finding the point at which the derivative of the total cost function with respect to the order quantity is equal to zero. Solving this equation gives us the EOQ formula, which represents the optimal order quantity for a given set of parameters.

Question 16

The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items:

Annual demand is 35,000 packages per year. The purchase price per package is $52.
How many deliveries will be required at the economic order quantity?
A) 16.36 deliveries
B) 15.91 deliveries
C) 20.12 deliveries
D) 23.14 deliveries

Accepted Answer

Deliveries at EOQ = 35,000 / 1739.37 = 20.12 deliveries

Question 17

The EOQ model factors in the probability of stockouts.

Accepted Answer

The EOQ model assumes that no stockouts occur.

Question 18

The optimal safety stock level is the quantity of safety stock that minimizes the sum of the annual relevant ________.
A) stockout costs and carrying costs
B) ordering costs and carrying costs
C) ordering costs and stockout costs
D) ordering costs and purchasing costs

Accepted Answer

The optimal safety stock level is determined by balancing the trade-off between stockout costs (from not having enough inventory to meet demand) and carrying costs (from holding excess inventory). Therefore, the optimal safety stock level is the quantity that minimizes the sum of these two costs, which is represented by choice A. Ordering costs and purchasing costs are not relevant to determining the optimal safety stock level.

Question 19

The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items:

Annual demand is 33,000 packages per year. The purchase price per package is $49.
What is the economic order quantity?
A) 1875.37 units
B) 1059.38 units
C) 1498.19 units
D) 2490.78 units

Accepted Answer

Unit carrying costs = ($49 × 0.18) + $5 = $13.82
EOQ = 11ea1398_f0eb_4b03_a1e4_673f9ae687a4_TB3027_11 = 1498.19 units

Question 20

The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items:

Annual demand is 30,000 packages per year. The purchase price per package is $53.
Which of the following statements is true of Allianz's EOQ system costs?
A) At EOQ, the annual relevant ordering costs is exactly the half of annual relevant carrying costs.
B) At EOQ, the annual relevant carrying costs is higher than the annual relevant ordering costs.
C) At EOQ, the annual relevant carrying costs is exactly the half of the annual relevant total costs.
D) At EOQ, the annual relevant carrying costs is equal to the annual relevant total costs.

Accepted Answer

The answer of The Allianz Company produces a specialty wood...

Quiz 20: Inventory Management, Just-in-Time, and Simplified Costing Methods

Companies use safety stock as a buffer against unexpected decreases in demand.

All of the following are reasons why a company might carry a safety stock except:

If Premium Company has a safety stock of 480 units and the average daily demand is 68 units, how many days can be covered if the shipment from the supplier is delayed by 4 days?

The optimal safety-stock level is the quantity of safety stock that minimizes the sum of annual relevant stockout and ordering costs.

The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Annual demand is 33,000 packages per year. The purchase price per package is $50. What is the annual relevant carrying costs?

The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Annual demand is 33,000 packages per year. The purchase price per package is $49. What are the relevant total costs at the economic order quantity?

The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Annual demand is 34,000 packages per year. The purchase price per package is $51. What is the annual relevant ordering costs?

If Kenton Inc. has a safety stock of 215 units and the average weekly demand is 35 units, how many days can be covered if the shipment from the supplier is delayed by 16 days?

The reorder point is the quantity level of inventory at which a new purchase order is made.

The EOQ model is solved using calculus but the key intuition is that relevant total costs are minimized when relevant ordering costs equal relevant carrying costs.

The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Annual demand is 35,000 packages per year. The purchase price per package is $52. How many deliveries will be required at the economic order quantity?

The EOQ model factors in the probability of stockouts.

The optimal safety stock level is the quantity of safety stock that minimizes the sum of the annual relevant ________.

The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Annual demand is 33,000 packages per year. The purchase price per package is $49. What is the economic order quantity?

The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Annual demand is 30,000 packages per year. The purchase price per package is $53. Which of the following statements is true of Allianz's EOQ system costs?