Question 1

Answer the following question(s) 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 10,000 packages per year. The purchase price per package is $16.
-What is the economic order quantity?

Accepted Answer

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Question 2

Answer the following question(s) 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 10,000 packages per year. The purchase price per package is $16.
-What are the total relevant costs, assuming the quantity ordered equals 500 units?

Accepted Answer

To calculate the total relevant costs, we need to consider the ordering cost and the holding cost.

Ordering cost = (annual demand / quantity ordered) x ordering cost per order

Here, the quantity ordered is 500 units, and we are given no information about the ordering cost per order.

Holding cost = (quantity ordered / 2) x holding cost per unit

Here, the holding cost per unit is not provided. Let's assume it to be $2 based on industry standards.

Holding cost = (500 / 2) x $2 = $500

Total relevant cost = Ordering cost + Holding cost

We do not have enough information to calculate the ordering cost. Therefore, the total relevant cost in this scenario is $500 (holding cost only).

So, the best choice would be not to order any units at all, since the holding cost alone is $500.

Question 3

The only product of a company has an annual demand of 2,000 units. The cost of placing an order is $40
and the cost of carrying one unit in inventory for one year is $16.
Required:
Determine the economic order quantity.

Accepted Answer

The answer of The only product of a company has...

Question 4

Bottle It has one particular product that has an annual demand of 1,000 units. Total manufacturing costs per unit total $40 and set-up costs per batch are $15. Direct material ordering costs for the product total $10 per order. Currently the carrying costs per unit are 25 percent of manufacturing costs.
Required:
Determine the economic manufacturing (order) quantity.

Accepted Answer

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Question 5

Due to unprecedented growth during the year Denise's Flowers 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:
For each of the following items tell whether the action caused an increase, a decrease, or no change to the EOQ.
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

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Question 6

Answer the following question(s) 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 10,000 packages per year. The purchase price per package is $16.
-Sandrington Ltd. operates a retail bicycle shop. Wheel covers are popular with customers. Sandrington purchases these covers for $48 (per pair) and expects to sell 5,000 pairs per year. Ordering costs are estimated at $180 per order and relevant insurance handling etc. costs are estimated at $0.30 per month. The company has established a 14% annual return on investment. At the EOQ quantity, Sandrington's total relevant inventory costs would be:

Accepted Answer

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Question 7

Answer the following question(s) 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 10,000 packages per year. The purchase price per package is $16.
-How many deliveries will be required at the economic order quantity?

Accepted Answer

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Question 8

The EOQ model is designed to emphasize the tradeoff between which of the following factors?

Accepted Answer

The EOQ model is designed to help find the optimal order quantity that minimizes total inventory costs by balancing the carrying costs (costs of holding inventory, such as storage, insurance, and obsolescence) with ordering costs (costs of placing an order, such as purchasing, transportation, and processing). Therefore, the tradeoff emphasized in the EOQ model is between carrying costs and ordering costs, which are both considered in the formula for calculating the EOQ.

Question 9

Answer the following question(s) using the information below:
Green Grass Incorporated is a distributor of golf balls. Garry's Golf Supplies is a local retail outlet which sells golf balls. Garry's purchases the golf balls from Green Grass Incorporated at $0.75 per ball; the golf balls are shipped in cartons of 72. Green Grass Incorporated pays all incoming freight, and Garry's Golf Supplies does not inspect the balls due to Green Grass' reputation for high quality. Annual demand is 172,800 golf balls at a rate of 3,322 balls per week. Garry's Golf Supplies earns 12% on its cash investments. The purchase-order lead time is one week. The following cost data are available:
 
-Purchasing at the EOQ recommended level, what are the relevant total costs?

Accepted Answer

To calculate the EOQ, we first need to find the annual ordering cost and annual carrying cost.

Annual ordering cost = (annual demand ÷ EOQ) * ordering cost per order 
Annual ordering cost = (172,800 ÷ 2,400) * $25 
Annual ordering cost = $1,800

Annual carrying cost = (EOQ ÷ 2) * carrying cost per unit 
Annual carrying cost = (2,400 ÷ 2) * ($0.75 * 0.12) 
Annual carrying cost = $54

Total relevant cost = annual ordering cost + annual carrying cost + purchase cost 
Total relevant cost = $1,800 + $54 + (2,400 * $0.75) 
Total relevant cost = $1,800 + $54 + $1,800 
Total relevant cost = $3,654

However, we need to consider the cost of cash discounts offered by Green Grass Incorporated. Green Grass offers a cash discount of 2% if payment is made within 10 days.

Cost of forgoing cash discount = purchase cost * (discount % ÷ (100% - discount %)) 
Cost of forgoing cash discount = $1,800 * (2% ÷ 98%) 
Cost of forgoing cash discount = $36.73

Relevant total costs = total relevant cost - cost of forgoing cash discount 
Relevant total costs = $3,654 - $36.73 
Relevant total costs = $2,085.67

Therefore, the best choice is B with the lowest total relevant cost.

Question 10

Answer the following question(s) using the information below:
Green Grass Incorporated is a distributor of golf balls. Garry's Golf Supplies is a local retail outlet which sells golf balls. Garry's purchases the golf balls from Green Grass Incorporated at $0.75 per ball; the golf balls are shipped in cartons of 72. Green Grass Incorporated pays all incoming freight, and Garry's Golf Supplies does not inspect the balls due to Green Grass' reputation for high quality. Annual demand is 172,800 golf balls at a rate of 3,322 balls per week. Garry's Golf Supplies earns 12% on its cash investments. The purchase-order lead time is one week. The following cost data are available:
 
-What is the economic order quantity?

Accepted Answer

EOQ = (2DS/H)^0.5 where
D = annual demand in units = 172,800
S = cost per order = $10
H = holding cost per unit per year = $0.09 (calculated as 12% of $0.75)
Therefore, EOQ = (2*172,800*10/0.09)^0.5 = 287.93 which is rounded to 288 cartons.
The best choice is B as it minimizes the total cost of inventory by balancing the ordering and holding costs.

Question 11

The economic-order quantity decision model

Accepted Answer

The economic-order quantity decision model is used to determine the optimal amount of inventory to order, taking into account factors such as inventory holding costs and order costs. It aims to minimize the total inventory cost, which includes both the cost of holding inventory and the cost of placing orders. Therefore, the correct choice is D, which states that the economic-order quantity model determines the optimal amount of inventory to order.

Question 12

Answer the following question(s) 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 10,000 packages per year. The purchase price per package is $16.
-Sandrington Ltd. operates a retail bicycle shop. Wheel covers are popular with customers. Sandrington purchases these covers for $48 (per pair) and expects to sell 5,000 pairs per year. Ordering costs are estimated at $180 per order and relevant insurance handling etc. costs are estimated at $0.30 per month. The company has established a 14% annual return on investment. The EOQ quantity for Sandrington is:

Accepted Answer

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Question 13

Answer the following question(s) 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 10,000 packages per year. The purchase price per package is $16.
-If Jackson Collectibles, Inc. has a safety stock of 35 units and the average weekly demand is 14 units, how many days can be covered if the shipment from the supplier is delayed?

Accepted Answer

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Question 14

Answer the following question(s) using the information below:
Green Grass Incorporated is a distributor of golf balls. Garry's Golf Supplies is a local retail outlet which sells golf balls. Garry's purchases the golf balls from Green Grass Incorporated at $0.75 per ball; the golf balls are shipped in cartons of 72. Green Grass Incorporated pays all incoming freight, and Garry's Golf Supplies does not inspect the balls due to Green Grass' reputation for high quality. Annual demand is 172,800 golf balls at a rate of 3,322 balls per week. Garry's Golf Supplies earns 12% on its cash investments. The purchase-order lead time is one week. The following cost data are available:
 
-If Garry's makes an order (1/12 of annual demand) once per month, what are the relevant total costs?

Accepted Answer

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Question 15

Berryton Products' only product has an annual demand of 1,000 units. The cost of placing an order is $20 and the cost of carrying one unit in inventory for one year is $10.
Required:
Determine the economic order quantity.

Accepted Answer

The answer of Berryton Products' only product has an annual...

Question 16

Answer the following question(s) using the information below:
Green Grass Incorporated is a distributor of golf balls. Garry's Golf Supplies is a local retail outlet which sells golf balls. Garry's purchases the golf balls from Green Grass Incorporated at $0.75 per ball; the golf balls are shipped in cartons of 72. Green Grass Incorporated pays all incoming freight, and Garry's Golf Supplies does not inspect the balls due to Green Grass' reputation for high quality. Annual demand is 172,800 golf balls at a rate of 3,322 balls per week. Garry's Golf Supplies earns 12% on its cash investments. The purchase-order lead time is one week. The following cost data are available:
 
-Purchasing at the EOQ recommended level, how many deliveries will be made during each time period?

Accepted Answer

- EOQ = sqrt(2DS/H) = sqrt((2*172,800*0.75)/(20%*0.12)) = 960
- Number of orders per year = Annual demand / EOQ = 172,800 / 960 = 180
- Number of orders per week = Number of orders per year / 52 weeks = 180 / 52 = 3.46
- Since Garry's Golf Supplies orders once a week, round up to 4 orders every 5 weeks, so there will be 8.3 deliveries during each time period.

Question 17

Answer the following question(s) 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 10,000 packages per year. The purchase price per package is $16.
-What are the relevant total costs at the economic order quantity?

Accepted Answer

The relevant total costs at the economic order quantity (EOQ) include both the ordering costs and the holding costs. The EOQ model aims to minimize these total costs, and in this scenario, the relevant total costs are given as $3,000.

Question 18

Answer the following question(s) 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 10,000 packages per year. The purchase price per package is $16.
-Wilson's Deli can predict with virtual certainty the demand for its products. Wilson's sells 20 hams per week. Purchase-order lead time is 2 weeks and the economic-order quantity is 50 hams. What is the reorder point?

Accepted Answer

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Question 19

Answer the following question(s) 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 10,000 packages per year. The purchase price per package is $16.
-If Ferry Company has a safety stock of 160 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?

Accepted Answer

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Question 20

Which of the following factor(s) would not cause a reduction in the EOQ?

Accepted Answer

Labour-intensive procurement methods would likely increase the costs and inefficiencies in the ordering process, potentially increasing the EOQ rather than reducing it.

Quiz 20: Inventory Cost Management Strategies

The only product of a company has an annual demand of 2,000 units. The cost of placing an order is $40 and the cost of carrying one unit in inventory for one year is $16. Required: Determine the economic order quantity.

The EOQ model is designed to emphasize the tradeoff between which of the following factors?

The economic-order quantity decision model

Berryton Products' only product has an annual demand of 1,000 units. The cost of placing an order is $20 and the cost of carrying one unit in inventory for one year is $10. Required: Determine the economic order quantity.

Which of the following factor(s) would not cause a reduction in the EOQ?