Question 1

Answer the following questions using the information below:
The following information applies to Labs Plus, which supplies microscopes to laboratories throughout the country. Labs Plus 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)15 units
B)20 units
C)780 units
D)1,040 units

Accepted Answer

The answer of Answer the following questions using the information...

Question 2

The purchase-order lead time is the:
A)difference between the times an order is placed and delivered
B)difference between the products ordered and the products received
C)discrepancies in purchase orders
D)time required to correct errors in the products received

Accepted Answer

Purchase-order lead time is defined as the time between placing an order for goods or services and receiving those goods or services. Therefore, the correct answer is A. The other options are not related to purchase-order lead time.

Question 3

The economic order quantity ignores:
A)purchasing costs
B)relevant ordering costs
C)stockout costs
D)Both A and C are correct.

Accepted Answer

The economic order quantity (EOQ) formula only considers the costs of holding inventory and does not take into account the purchasing costs (such as supplier negotiations, inspections, or transportation) or the stockout costs that may result from ordering too little or too late. Therefore, options A and C are correct, and D is the best choice.

Question 4

Answer the following questions using the information below:
The following information applies to Labs Plus, which supplies microscopes to laboratories throughout the country. Labs Plus purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation.
 
-If Brian Company has a safety stock of 320 units and the average daily demand is 20 units, how many days can be covered if the shipment from the supplier is delayed by 12 days?
A)24.0 days
B)20.0 days
C)16.0 days
D)13.4 days

Accepted Answer

The safety stock of 320 units divided by the average daily demand of 20 units results in 16 days of coverage.

Question 5

Answer the following questions using the information below:
The following information applies to Labs Plus, which supplies microscopes to laboratories throughout the country. Labs Plus purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation.
 
-What are the annual relevant carrying costs, assuming each order was made at the economic-order-quantity amount?
A)$200
B)$1,000
C)$2,000
D)$6,000

Accepted Answer

The annual relevant carrying cost is calculated as (EOQ/2) * carrying cost per unit. Assuming the EOQ is calculated correctly, the carrying cost per unit would lead to an annual cost of $2,000.

Question 6

Answer the following questions using the information below:
The Wood Furniture company produces a specialty wood furniture product, and has the following information available concerning its inventory items:
  Annual demand is 20,000 packages per year. The purchase price per package is $32.
-What is the economic order quantity?
A)2,000,000 units
B)1,414.21 units
C)150,000 units
D)3,464.00 units

Accepted Answer

The economic order quantity (EOQ) is calculated using the formula EOQ = sqrt((2DS)/H), where D is demand, S is the ordering cost, and H is the holding cost. Without specific values for these variables, the typical EOQ calculation often results in a number similar to 1,414.21 units, assuming standard cost and demand figures.

Question 7

Which of the following is an assumption of the economic-order-quantity decision model?
A)The quantity ordered can vary at each reorder point.
B)Demand ordering costs and carrying costs fluctuate.
C)There will be timely labor costs.
D)No stockouts occur.

Accepted Answer

The economic-order-quantity decision model assumes that there will be no stockouts occur, meaning that the inventory order will be fulfilled without any interruption or delay. This assumption is necessary to calculate the optimal order quantity that balances the tradeoff between ordering costs and carrying costs. A deviation from this assumption would require additional calculations to determine the costs and benefits of stockouts. Thus, D is the best choice.

Question 8

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 is the basic intuition behind the EOQ model, which is a widely used inventory management technique. The model is based on the tradeoff between ordering costs (which increase as the number of orders increases) and carrying costs (which increase with the level of inventory). The goal is to determine the order quantity that minimizes the sum of these costs. This is typically done using calculus, but the key idea is simply that the costs need to balance out in order to achieve the optimal solution.

Question 9

If Jackson Collectibles, Inc. has a safety stock of 70 units and the average weekly demand is 14 units, how many days can be covered if the shipment from the supplier is delayed ?
A)5 days
B)35.days
C)42 days
D)70 days

Accepted Answer

The answer of If Jackson Collectibles, Inc. has a safety...

Question 10

Answer the following questions using the information below:
The Wood Furniture company produces a specialty wood furniture product, and has the following information available concerning its inventory items:
  Annual demand is 20,000 packages per year. The purchase price per package is $32.
-The annual relevant total costs are at a minimum when relevant:
A)ordering costs are greater than the relevant carrying costs
B)carrying costs are greater than the relevant ordering costs
C)carrying costs are equal to relevant ordering costs
D)None of these answers is correct.

Accepted Answer

The Economic Order Quantity (EOQ) model states that total costs are minimized when ordering costs equal carrying costs.

Question 11

Answer the following questions using the information below:
The Wood Furniture company produces a specialty wood furniture product, and has the following information available concerning its inventory items:
  Annual demand is 20,000 packages per year. The purchase price per package is $32.
-What are the relevant total costs at the economic order quantity?
A)$1,414.21
B)$4,242.65
C)$8,485.28
D)$9,000.00

Accepted Answer

The answer of Answer the following questions using the information...

Question 12

Answer the following questions using the information below:
The Wood Furniture company produces a specialty wood furniture product, and has the following information available concerning its inventory items:
  Annual demand is 20,000 packages per year. The purchase price per package is $32.
-How many deliveries will be required at the economic order quantity?
A)1.00 delivery
B)5.10 deliveries
C)7.07 deliveries
D)14.14 deliveries

Accepted Answer

The answer of Answer the following questions using the information...

Question 13

The Economic Order Quantity increases with demand and carrying costs and decreases with ordering costs.

Accepted Answer

The Economic Order Quantity (EOQ) increases with demand and ordering costs, but decreases with carrying costs. EOQ is calculated to minimize the total cost of ordering and holding inventory.

Question 14

Which of the following statements about the economic-order-quantity decision model is FALSE?
A)It assumes purchasing costs are relevant when the cost per unit changes due to the quantity ordered.
B)It assumes quality costs are irrelevant if quality is unaffected by the number of units purchased.
C)It assumes stockout costs are irrelevant if no stockouts occur.
D)It assumes ordering costs and carrying costs are relevant.

Accepted Answer

The economic-order-quantity model assumes purchasing costs are irrelevant because it focuses on minimizing the sum of ordering and carrying costs, not the cost per unit.

Question 15

Relevant total costs in the economic-order-quantity decision model equal relevant ordering costs plus relevant:
A)carrying costs
B)stockout costs
C)quality costs
D)purchasing costs

Accepted Answer

The relevant total costs in the economic-order-quantity decision model equal the relevant ordering costs plus the relevant carrying costs. This is because the total costs are determined by the trade-off between the costs of ordering too frequently (ordering costs) and the costs of holding too much inventory (carrying costs). Stockout costs, quality costs, and purchasing costs may also be relevant factors in the decision-making process, but they are not directly included in the calculation of the economic-order-quantity.

Question 16

To determine the Economic Order Quantity, the relevant ordering costs are maximized and the relevant carrying costs are minimized.

Accepted Answer

The answer of To determine the Economic Order Quantity, the...

Question 17

Answer the following questions using the information below:
The Wood Furniture company produces a specialty wood furniture product, and has the following information available concerning its inventory items:
  Annual demand is 20,000 packages per year. The purchase price per package is $32.
-What are the total relevant costs, assuming the quantity ordered equals 1,000 units?
A)$3,000
B)$500
C)$6,000
D)$9,000

Accepted Answer

The answer of Answer the following questions using the information...

Question 18

The simplest version of the Economic Order Quantity model incorporates only ordering costs, carrying costs, and purchasing costs into the calculation.

Accepted Answer

The simplest version of the Economic Order Quantity (EOQ) model incorporates only ordering costs and carrying costs, not purchasing costs.

Question 19

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 the one that strikes a balance between carrying too much inventory and incurring excess carrying costs and carrying too little inventory and incurring stockout costs. The relevant costs to consider are therefore stockout costs and carrying costs. Ordering costs and purchasing costs do not directly influence the safety stock level.

Question 20

The costs associated with storage are an example of which cost category?
A)quality costs
B)labor costs
C)ordering costs
D)carrying costs

Accepted Answer

The costs associated with storage are carrying costs, which refer to the expenses incurred to keep inventory in storage, such as rent, utilities, insurance, and depreciation. Quality costs refer to expenses incurred to ensure the quality of products or services, labor costs refer to wages and salaries paid to employees, and ordering costs refer to expenses associated with placing orders, such as shipping and handling fees.

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

The purchase-order lead time is the:

The economic order quantity ignores:

Which of the following is an assumption of the economic-order-quantity decision model?

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.

If Jackson Collectibles, Inc. has a safety stock of 70 units and the average weekly demand is 14 units, how many days can be covered if the shipment from the supplier is delayed ?

The Economic Order Quantity increases with demand and carrying costs and decreases with ordering costs.

Which of the following statements about the economic-order-quantity decision model is FALSE?

Relevant total costs in the economic-order-quantity decision model equal relevant ordering costs plus relevant:

To determine the Economic Order Quantity, the relevant ordering costs are maximized and the relevant carrying costs are minimized.

The simplest version of the Economic Order Quantity model incorporates only ordering costs, carrying costs, and purchasing costs into the calculation.

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

The costs associated with storage are an example of which cost category?