Question 1

If demand is not uniform and constant,then stockout risks can be controlled by

Accepted Answer

Adding safety stock is the best option for controlling stockout risks when demand is not uniform and constant. Safety stock provides a buffer against unexpected demand fluctuations and helps prevent stockouts. Increasing EOQ, placing an extra order, and reducing the reorder point may not be effective in managing stockout risks caused by unpredictable demand patterns. Raising the selling price to reduce demand is not a desirable option as it may lead to reduced sales and loss of customer goodwill.

Question 2

The fixed-period inventory model requires more safety stock than the fixed-quantity models because

Accepted Answer

The fixed-period inventory model requires more safety stock than the fixed-quantity models because there is a possibility of a stockout occurring during the review period as well as during the lead time. This is because the inventory level is only checked at fixed intervals, and if the demand during a review period exceeds the expected demand, it may lead to a stockout before the next review period.

Question 3

The purpose of safety stock is to

Accepted Answer

The purpose of safety stock is to control the likelihood of a stockout due to the variability of demand during lead time. In other words, safety stock is a buffer of inventory that is kept on hand to ensure that there is enough stock available to cover unexpected demand or supply chain disruptions. By having safety stock in place, businesses can reduce the risk of stockouts and maintain a more consistent level of customer service.

Question 4

In a safety stock problem where both demand and lead time are variable,demand averages 150 units per day with a daily standard deviation of 16,and lead time averages 5 days with a standard deviation of 1 day.The standard deviation of demand during lead time is approximately

Accepted Answer

To calculate the standard deviation of demand during lead time, we use the formula: $\sqrt{(LT 	imes \sigma^2_{demand})+(\sigma^2_{LT} 	imes \mu^2_{demand})}$
Using the values given, we have: 
$\sqrt{(5 	imes 16^2) + (1^2 	imes 150^2)} \approx 154$
Therefore, the standard deviation of demand during lead time is approximately 154 units.

Question 5

A specific product has demand during lead time of 100 units,with a standard deviation of 25 units.What safety stock (approximately)provides a 95% service level?

Accepted Answer

For a 95% service level, the Z-score is approximately 1.65. Safety stock is calculated as Z-score * standard deviation of demand during lead time. Therefore, safety stock = 1.65 * 25 = 41.25, which is approximately 41.

Question 6

If daily demand is constant at 10 units per day,and lead time averages 12 days with a standard deviation of 3 days,95% service requires a safety stock of approximately

Accepted Answer

We can calculate the safety stock using the formula:

Safety Stock = z * σLT * sqrt(LT)

where z is the z-score at the desired service level (95% for this question), σLT is the standard deviation of lead time (3 days), and LT is the average lead time (12 days).

First, we need to find the z-score at the 95% service level. This corresponds to a probability of 0.95 or 1 - α/2, where α/2 is the cumulative probability in the tails of a standard normal distribution. Using a standard normal distribution table or a calculator, we find that the z-score for 95% service is approximately 1.96.

Plugging in the values, we get:

Safety Stock = 1.96 * 3 * sqrt(12) = 17.96

Rounding up to the nearest whole unit, the safety stock required is approximately 18 units. However, since demand is constant at 10 units per day, we need to have enough safety stock to cover the entire lead time demand, which is:

Lead Time Demand = daily demand * lead time = 10 * 12 = 120 units

Therefore, the total safety stock required is:

Total Safety Stock = Safety Stock * Lead Time Demand = 18 * 120 = 2160 units

However, since safety stock cannot be fractional, we need to round up to the nearest integer. The final answer is therefore:

Total Safety Stock = 49 units (rounded up from 48.46)

Question 7

A bakery wants to determine how many trays of doughnuts it should prepare each day.Demand is normal with a mean of 5 trays and standard deviation of 1 tray.If the owner wants a service level of at least 95% how many trays should he prepare (round to the nearest whole tray)? Assume doughnuts have no salvage value after the day is complete.

Accepted Answer

The answer of A bakery wants to determine how many...

Question 8

If daily demand is normally distributed with a mean of 15 and standard deviation of 5,and lead time is constant at 4 days,90% service level will require safety stock of approximately

Accepted Answer

We can use the following formula to calculate safety stock:

Safety Stock = Z-value × Standard Deviation of Demand during Lead Time

Here, the Z-value for 90% service level is 1.28 (refer to standard normal distribution table). The standard deviation of demand during lead time can be calculated as follows:

Standard deviation of demand during lead time = Standard deviation of daily demand × Square root of lead time
= 5 × Square root of 4
= 10

Substituting these values in the safety stock formula, we get:

Safety Stock = 1.28 × 10 = 12.8

Rounding it up, safety stock of approximately 13 units is required to achieve 90% service level. Therefore, the correct answer is C.

Question 9

Which of the following statements about quantity discounts is false?

Accepted Answer

The larger the annual demand, the more attractive a discount schedule typically becomes because buying in larger quantities to meet the higher demand can lead to greater savings through quantity discounts.

Question 10

Service level is

Accepted Answer

Service level is the probability of meeting demand during lead time. It is calculated as the cost of a shortage divided by (the cost of overage + the cost of shortage) for single-period models.

Question 11

Which category of inventory holding costs is much higher than average for rapid-change industries such as PCs and cell phones?

Accepted Answer

Rapid-change industries such as PCs and cell phones face high rates of technological obsolescence, which leads to high levels of pilferage, scrap, and obsolescence costs. These costs can be much higher than average in such industries, making E the best choice.

Question 12

When quantity discounts are allowed,the cost-minimizing order quantity

Accepted Answer

Quantity discounts impact the total cost by affecting the product cost component in addition to holding and ordering costs. The cost-minimizing order quantity, therefore, minimizes the sum of all three costs: holding, ordering, and product costs.

Question 13

Demand for dishwasher water pumps is 8 per day.The standard deviation of demand is 3 per day,and the order lead time is four days.The service level is 95%.What should the reorder point be?

Accepted Answer

The answer of Demand for dishwasher water pumps is 8...

Question 14

The main trait of a single-period model is that

Accepted Answer

The main trait of a single-period model is that inventory has limited value after a certain period of time, often used for items like perishable goods or seasonal products.

Question 15

A local club is selling Christmas trees and deciding how many to stock for the month of December.If demand is normally distributed with a mean of 100 and standard deviation of 20,trees have no salvage value at the end of the month,trees cost $20,and trees sell for $50 what is the service level?

Accepted Answer

The answer of A local club is selling Christmas trees...

Question 16

A production order quantity problem has daily demand rate = 10 and daily production rate = 50.The production order quantity for this problem is approximately 612 units.The average inventory for this problem is approximately

Accepted Answer

The answer of A production order quantity problem has daily...

Question 17

The proper quantity of safety stock is typically determined by

Accepted Answer

The proper quantity of safety stock is typically determined by setting the level of safety stock so that a given stockout risk is not exceeded. This involves taking into account factors such as lead time variability and demand variability to ensure a certain level of service is maintained while minimizing excess inventory. Option A is incorrect because single-period models are used to make inventory decisions for a one-time purchase or production run, not for managing ongoing inventory levels. Option B is incorrect because carrying sufficient safety stock to eliminate all stockouts is not feasible or cost-effective. Option C is incorrect because multiplying the EOQ by the desired service level may not account for the variability in demand and lead time. Option E is incorrect because minimizing total costs may not necessarily result in the proper quantity of safety stock to maintain a certain level of service.

Question 18

If the standard deviation of demand is six per week,demand is 50 per week,and the desired service level is 95%,approximately what is the statistical safety stock?

Accepted Answer

The answer of If the standard deviation of demand is...

Question 19

Suppose that a newspaper stand is operating under the following conditions;papers cost $.4,have no salvage value,and sell for $.80.If the salvage value is increased by $.1,what is the increase in service level?

Accepted Answer

To find the increase in service level, we need to use the following formula:
Increase in Service Level = (Increase in Salvage Value) / (Sale Price - Salvage Value)

Before the salvage value increase:
Sale Price = $0.80
Salvage Value = $0 (no salvage value)

So the initial service level would be:
Initial Service Level = $0 / ($0.80 - $0) = 0

After the salvage value increase:
Salvage Value = $0.10

So the new service level would be:
New Service Level = ($0.10 - $0) / ($0.80 - $0.10) = 0.07

Therefore, the increase in service level would be 0.07 or choice C.

Question 20

Which of the following items is mostly likely managed using a single-period order model?

Accepted Answer

Christmas trees are a seasonal item that is only sold for a limited time, typically within a single period. Therefore, a single-period order model would be most appropriate for managing inventory of Christmas trees.

Quiz 12: Inventory Management