Question 1

Table 5.4
A company operating under a continuous review system has an average demand of 50 units per week for the item it produces.The standard deviation in weekly demand is 20 units.The lead time for the item is 6 weeks,and it costs the company $30 to process each order.The holding cost for each unit is $10 per year.The company operates 52 weeks per year.You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.4.What is the desired safety stock level if the company has a policy of maintaining a 90 percent cycle-service level?

Accepted Answer

The answer of Table 5.4
A company operating under a continuous...

Question 2

Table 5.1
Fred Jacobs,assistant manager of Home and Hearth,is reviewing the costs associated with the store's best-selling frying pan.The data available to Mr.Jacobs concerning this frying pan follow.  Home and Hearth operates 50 weeks per year.
-Use the information in Table 6.1.Jacobs has recently learned of the economic order quantity in his business management class.If Home and Hearth implemented the EOQ,which of the following statements is TRUE?

Accepted Answer

The answer of Table 5.1
Fred Jacobs,assistant manager of Home and...

Question 3

Table 5.4
A company operating under a continuous review system has an average demand of 50 units per week for the item it produces.The standard deviation in weekly demand is 20 units.The lead time for the item is 6 weeks,and it costs the company $30 to process each order.The holding cost for each unit is $10 per year.The company operates 52 weeks per year.You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.4.What is the economic order quantity (EOQ)for this item?

Accepted Answer

The answer of Table 5.4
A company operating under a continuous...

Question 4

Table 5.4
A company operating under a continuous review system has an average demand of 50 units per week for the item it produces.The standard deviation in weekly demand is 20 units.The lead time for the item is 6 weeks,and it costs the company $30 to process each order.The holding cost for each unit is $10 per year.The company operates 52 weeks per year.You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.4.What is the reorder point if the company finally decides to have a 95 percent cycle-service level?

Accepted Answer

The answer of Table 5.4
A company operating under a continuous...

Question 5

The percentage of demand for an item that is met from on-hand inventory,relative to the total demand for that item is referred to as the

Accepted Answer

The percentage of demand for an item that is met from on-hand inventory, relative to the total demand for that item is referred to as the item fill rate. Option A is incorrect because safety stock ratio is the percentage of additional inventory held to reduce the risk of stockouts. Option B is incorrect because cycle service ratio is the ratio of the level of inventory needed to support a cycle of business activity (e.g. a week or a month) to the actual level of inventory on hand. Option D is incorrect because reorder rate is the frequency with which an item needs to be ordered to replenish stock.

Question 6

The Franklin County Hospital is currently using a continuous review system to control its inventory.One of the items in inventory is an elastic band.The average demand for this item is 200 boxes per week,and the standard deviation in weekly demand is 50 boxes.If the lead time is 3 weeks and the hospital wants a 99 percent cycle-service level,what is the reorder point for this item? A normal table is appended to this exam.

Accepted Answer

To calculate the reorder point, we need to use the formula:
Reorder point = (Average demand x Lead time) + (Z-score for desired service level x Standard deviation of demand x Square root of lead time)
Given:
Average demand = 200 boxes per week
Standard deviation of demand = 50 boxes
Lead time = 3 weeks
Desired service level = 99%
Z-score for 99% service level = 2.33 (from the normal table)

Plugging in the values, we get:
Reorder point = (200 x 3) + (2.33 x 50 x sqrt(3))
Reorder point = 600 + 135.8
Reorder point = 735.8

Therefore, the reorder point is greater than 750 boxes but less than or equal to 850 boxes. The answer is C.

Question 7

Table 5.1
Fred Jacobs,assistant manager of Home and Hearth,is reviewing the costs associated with the store's best-selling frying pan.The data available to Mr.Jacobs concerning this frying pan follow.  Home and Hearth operates 50 weeks per year.
-Use the information in Table 5.1 The current order quantity is 125 units per order.What is the total annual ordering cost and holding cost for this order size?

Accepted Answer

The answer of Table 5.1
Fred Jacobs,assistant manager of Home and...

Question 8

Demand for an item is 1000 units per week,with a standard deviation in weekly demand of 60 units.The lead time is 2 weeks.The company wants to maintain an 88 percent cycle-service level.Assume demand during lead time to be normally distributed.For a continuous review system,what should be the reorder point? A normal table is attached at the end of this exam.

Accepted Answer

The answer of Demand for an item is 1000 units...

Question 9

On-hand inventory of an item is only 10 units,and the reorder point R is 135.There are no backorders,and an open order of 110 units is scheduled to arrive next week.Which one of the following statements is TRUE?

Accepted Answer

The answer of On-hand inventory of an item is only...

Question 10

A neighborhood sportswear store sells a pair of Nike sneakers for $40.Due to the recent fitness craze,these shoes are in high demand: 50 pairs of shoes are sold per week.The ordering cost is $20/order,and the annual holding cost is 20 percent of selling price.If the store operates 52 weeks a year,what can you say about the current lot size of 235?

Accepted Answer

The answer of A neighborhood sportswear store sells a pair...

Question 11

Table 5.3
The Medfield Import Autoparts Company imports and sells standard air filters for most Japanese cars,and it operates under the continuous review system.The average demand for this item is 1200 units per month (14,400 per year),and the standard deviation in monthly demand is 250 units.It costs the company $225 to process each order,and the lead time is 2 months.The holding cost for one unit is $0.50 per year,and the company policy is to maintain a 95 percent cycle-service level.You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.3.What is the reorder point R to satisfy a 95 percent cycle-service level?

Accepted Answer

To calculate the reorder point R, we need to use the formula: R = dL + zσL, where d is the average demand per month, L is the lead time in months, σ is the standard deviation in monthly demand, and z is the z-score associated with a 95% cycle-service level.

Plugging in the given values, we get: 
R = (1200)(2) + 1.645(250(2)^0.5) = 2908.25

Since we cannot have a fraction of a unit, we round up to the nearest whole unit: R = 2909 units.

Therefore, the reorder point R to satisfy a 95 percent cycle-service level is greater than 2900 units but less than or equal to 3000 units. The best choice is C.

Question 12

Table 5.3
The Medfield Import Autoparts Company imports and sells standard air filters for most Japanese cars,and it operates under the continuous review system.The average demand for this item is 1200 units per month (14,400 per year),and the standard deviation in monthly demand is 250 units.It costs the company $225 to process each order,and the lead time is 2 months.The holding cost for one unit is $0.50 per year,and the company policy is to maintain a 95 percent cycle-service level.You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.3.What is the EOQ (economic order quantity)for this air filter?

Accepted Answer

EOQ formula: √(2DS/H)
D = Annual demand = 14,400
S = Ordering cost = $225
H = Holding cost per unit per year = $0.50

EOQ = √((2*14,400*225)/0.5) = 4,247.16

The closest option to the EOQ is C, which is greater than 3,000 units but less than or equal to 4,000 units.

Question 13

Table 5.5
You are the operations manager of a firm that uses the continuous review inventory control system.Suppose the firm operates 52 weeks a year and has the following characteristics for its primary item:
Demand = 25,000 units/year
Ordering cost = $30/order
Holding cost = $8/unit/year
Lead time = 2 weeks
Standard deviation in weekly demand = 100 units
You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.5.What safety stock level provides a 95 percent cycle-service level?

Accepted Answer

To calculate safety stock level, we need to use the formula:
Safety stock = z*σL
where z is the z-value from the normal table for the desired cycle-service level (95 percent in this case), σL is the standard deviation in demand during lead time.

First, we need to calculate the standard deviation in demand during lead time:
σL = σd * √L
where σd is the standard deviation in weekly demand, L is the lead time in weeks.
σL = 100 * √2 = 141.42 units

Next, we need to find the z-value for 95 percent cycle-service level. From the normal table, the closest z-value for 95 percent is 1.65.

Finally, we can calculate the safety stock level:
Safety stock = 1.65 * 141.42 = 233.35 ≈ 234 units

Therefore, the answer is C, greater than 200 but less than or equal to 250 units.

Question 14

An item experiences an annual demand of 7200 units.It costs $8 to hold an item in inventory for one year and $16 to place an order.If the EOQ model is used,what is the time between orders? Assume that there are 52 business weeks in a year.

Accepted Answer

Using the EOQ formula, we have:
EOQ = sqrt((2DS)/H)
Where:
D = annual demand = 7,200 units
S = ordering cost = $16
H = holding cost per unit per year = $8

EOQ = sqrt((2 * 7,200 * 16)/8) ≈ 302 units

The time between orders can be calculated as:
Time between orders = EOQ / demand per week
Demand per week = annual demand / number of weeks in a year = 7,200 / 52 ≈ 138.46 units per week

Time between orders = 302 / 138.46 ≈ 2.18 weeks

Therefore, the time between orders is greater than 1 week but less than or equal to 2 weeks (choice B).

Question 15

Wood County Hospital consumed 400 boxes of bandages per week last year.The price of bandages was $80 per box,and the hospital operates 52 weeks per year.The cost of processing an order was $64,and the cost of holding one box throughout a full year was 20 percent of the value of the material. Last year the hospital ordered bandages,on average,once every two weeks,each time ordering 800 boxes.What extra cost did the hospital incur that could have been avoided if the EOQ concept had been applied?

Accepted Answer

The answer of Wood County Hospital consumed 400 boxes of...

Question 16

Table 5.2
Consider the following data for an independent demand item maintained by Vicki Crittenden,the proprietor of a local auto repair shop:
Weekly demand = 50 units
Ordering cost = $8/order
Holding cost = $4/order
Weeks in a year = 50
-Use the information in Table 5.2.If Crittenden uses the EOQ model,how frequently must she place orders for this item?

Accepted Answer

Using the EOQ formula:
EOQ = sqrt((2DS)/H)
where D = weekly demand (50 units), S = ordering cost ($8/order), and H = holding cost ($4/order)
EOQ = sqrt((2*50*8)/4) = sqrt(400) = 20 units
Since Crittenden needs 50 units in a week, she needs to order every 50/20 = 2.5 weeks. Rounding up to the nearest whole number, she should place orders every 2 weeks.

Question 17

Sark Incorporated is out of stock for a key item,which has a backorder of 200 units.An open order of 750 units is scheduled for arrival on the following Monday.What is the current inventory position at Sark?

Accepted Answer

The answer of Sark Incorporated is out of stock for...

Question 18

Table 5.2
Consider the following data for an independent demand item maintained by Vicki Crittenden,the proprietor of a local auto repair shop:
Weekly demand = 50 units
Ordering cost = $8/order
Holding cost = $4/order
Weeks in a year = 50
-Use the information in Table 5.2.Due to new ordering procedures initiated by Crittenden,the ordering cost is dropping to $4/order.At the same time,the weekly demand increases to 64 units per week due to an increase in business.What effect do these changes have on the EOQ quantity for this item?

Accepted Answer

The answer of Table 5.2
Consider the following data for an...

Question 19

For an item under continuous review,the on-hand inventory is only 20 units and the reorder point R is 100 units.There are no backorders,but there is one open order for 90 units.Which one of the following statements is TRUE?

Accepted Answer

The answer of For an item under continuous review,the on-hand...

Question 20

Table 5.3
The Medfield Import Autoparts Company imports and sells standard air filters for most Japanese cars,and it operates under the continuous review system.The average demand for this item is 1200 units per month (14,400 per year),and the standard deviation in monthly demand is 250 units.It costs the company $225 to process each order,and the lead time is 2 months.The holding cost for one unit is $0.50 per year,and the company policy is to maintain a 95 percent cycle-service level.You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.3.What is the reorder point R if the cycle-service level is brought down to 80 percent?

Accepted Answer

The answer of Table 5.3
The Medfield Import Autoparts Company imports...

Quiz 5: Inventory Management

The percentage of demand for an item that is met from on-hand inventory,relative to the total demand for that item is referred to as the

On-hand inventory of an item is only 10 units,and the reorder point R is 135.There are no backorders,and an open order of 110 units is scheduled to arrive next week.Which one of the following statements is TRUE?

An item experiences an annual demand of 7200 units.It costs $8 to hold an item in inventory for one year and $16 to place an order.If the EOQ model is used,what is the time between orders? Assume that there are 52 business weeks in a year.

Sark Incorporated is out of stock for a key item,which has a backorder of 200 units.An open order of 750 units is scheduled for arrival on the following Monday.What is the current inventory position at Sark?

For an item under continuous review,the on-hand inventory is only 20 units and the reorder point R is 100 units.There are no backorders,but there is one open order for 90 units.Which one of the following statements is TRUE?