Question 1

Which one of the following is not an assumption of the EOQ model?

Accepted Answer

While the EOQ model does take into consideration the cost implications of ordering larger quantities, it does not assume that quantity discounts are available or can be taken advantage of for large lot sizes.

Question 2

Scenario 9.1
The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year.
-Use the information in Scenario 9.1.What are the annual ordering costs if Talbot orders using the EOQ quantity?

Accepted Answer

The EOQ (Economic Order Quantity) formula is used to minimize the total cost of ordering and holding inventory. The EOQ is calculated as √((2DS)/H), where D is the demand (8,000 units), S is the ordering cost ($50), and H is the holding cost ($20). The EOQ is √((2*8000*50)/20) = 200 units. The number of orders per year is 8,000/200 = 40. Therefore, the annual ordering cost is 40 orders * $50 per order = $2,000, which falls in the range greater than $1,000 but less than or equal to $2,500.

Question 3

Scenario 9.1
The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year.
-Use the information in Scenario 9.1.What is the economic order quantity for the XO-01?

Accepted Answer

The Economic Order Quantity (EOQ) is calculated using the formula: EOQ = sqrt((2 * Demand * Order Cost) / Holding Cost). Plugging in the values: EOQ = sqrt((2 * 8000 * 50) / 20) = sqrt(40000) = 200 units.

Question 4

Scenario 9.2
The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes.One of these gear assemblies,the "Smooth Shifter",is used for the two most expensive of Burdell's four models,and has an estimated annual demand of 300 units.Burdell estimates the cost to place an order is $40,and the holding cost for each assembly is $60 per year.The company operates 250 days per year.
-Use the information in Scenario 9.2.What are the annual inventory holding costs if Burdell orders using the EOQ quantity?

Accepted Answer

The Economic Order Quantity (EOQ) can be calculated using the formula: EOQ = sqrt((2 * Demand * Order Cost) / Holding Cost). Substituting the given values: EOQ = sqrt((2 * 300 * 40) / 60) = sqrt(400) = 20 units. The annual holding cost is calculated as (EOQ/2) * Holding Cost = (20/2) * 60 = $600.

Question 5

Scenario 9.1
The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year.
-Use the information in Scenario 9.1.The purchasing manager decides that,in order to save purchasing time,orders for the XO-01 will be placed every three months,or four times per year.How much does this approach cost Talbot in total annual holding and ordering costs (instead of Talbot ordering using the EOQ quantity)?

Accepted Answer

Using the EOQ formula for the XO-01 assembly,
EOQ = sqrt((2DS)/H)
where D = demand (8,000 units), S = order cost ($50), and H = holding cost per unit ($20).
EOQ = sqrt((2*8,000*50)/20) = 400 units per order

The number of orders placed in a year is calculated:
Number of orders = (Demand in units) / (Units per order)
Number of orders = 8,000 / 400 = 20 orders per year

Ordering 4 times a year means that the number of units per order is:
Units per order = (Demand in units) / (Number of orders per year)
Units per order = 8,000 / 4 = 2,000 units per order

Using this approach, Talbot incurs annual ordering costs of:
Annual ordering costs = (Number of orders per year) * (Order cost per order)
Annual ordering costs = 20 * 50 = $1,000

Talbot also incurs annual holding costs of:
Annual holding costs = (Units per order) / 2 * (Holding cost per unit)
Annual holding costs = 2,000 / 2 * 20 = $20,000

Total annual cost = Annual ordering costs + Annual holding costs
Total annual cost = $1,000 + $20,000 = $21,000

Therefore, the best choice is B, since the total annual cost of ordering 4 times per year is greater than $14,000 but less than or equal to $18,000, while the EOQ quantity would have resulted in a lower total cost of $10,000.

Question 6

You have taken a job in industry and are facing your first ordering decision.As you prepare to place the order,you remember your instructor teaching you that you wouldn't use the EOQ formula if:

Accepted Answer

If order size is constrained by capacity limitations, the EOQ formula cannot be used as it assumes that any order size is possible. Constraints such as delivery truck size or production capacity make it necessary to adjust the order size and therefore the EOQ formula would not be applicable. Options A, B, and D are all scenarios where the EOQ formula could be applied.

Question 7

Scenario 9.2
The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes.One of these gear assemblies,the "Smooth Shifter",is used for the two most expensive of Burdell's four models,and has an estimated annual demand of 300 units.Burdell estimates the cost to place an order is $40,and the holding cost for each assembly is $60 per year.The company operates 250 days per year.
-Use the information in Scenario 9.2.What are the annual ordering costs if Burdell orders using the EOQ quantity?

Accepted Answer

The answer of Scenario 9.2
The Burdell Company is a small...

Question 8

The Lemma Company manufactures and sells 10 products.Ways have been found to cut both the setup and inventory holding costs in half.What effect will this have on the economic order quantities of the 10 products?

Accepted Answer

The answer of The Lemma Company manufactures and sells 10...

Question 9

Scenario 9.1
The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year.
-Use the information in Scenario 9.1.How many times per year must Talbot order the XO-01 when orders are placed using the EOQ quantity?

Accepted Answer

The answer of Scenario 9.1
The Talbot Company uses electrical assemblies...

Question 10

Sensitivity analysis on the economic order quantity (EOQ)formula can help the operations manager answer several questions on how to manage inventories.Which one of the following questions is NOT answered by EOQ sensitivity analysis?

Accepted Answer

The answer of Sensitivity analysis on the economic order quantity...

Question 11

Scenario 9.1
The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year.
-Use the information in Scenario 9.1.What are the annual inventory holding costs if Talbot orders using the EOQ quantity?

Accepted Answer

First, we need to calculate the Economic Order Quantity (EOQ) using the formula:
EOQ = √[(2DS/H)]
where D = annual demand, S = cost to place an order, H = holding cost per unit per year.

Plugging in the values from the scenario:
EOQ = √[(2*8000*50)/20]
EOQ = √[80000]
EOQ = 282.84 (rounded up to 283)

The annual holding cost can then be calculated using the formula:
Annual Holding Cost = (Q/2) * H
where Q = order quantity, H = holding cost per unit per year.

Plugging in the values from the scenario and using the EOQ as the order quantity:
Annual Holding Cost = (283/2) * 20
Annual Holding Cost = $2,830

Therefore, the annual inventory holding costs if Talbot orders using the EOQ quantity is greater than $1,500 but less than or equal to $4,000.

Question 12

Which one of the following statements concerning the economic order quantity (EOQ)is TRUE?

Accepted Answer

The answer of Which one of the following statements concerning...

Question 13

Which one of the following statements concerning the economic order quantity (EOQ)model is TRUE?

Accepted Answer

According to the EOQ model, the optimal order quantity is inversely proportional to the holding cost. This means that a decrease in the holding cost will increase the EOQ, and vice versa. Option A is incorrect because an increase in holding cost will actually decrease the EOQ. Option B is incorrect because a decrease in demand will decrease the EOQ. Option D is incorrect because C is true.

Question 14

Scenario 9.1
The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year.
-Use the information in Scenario 9.1.What is the cycle length (time between orders)when orders are placed using the EOQ quantity?

Accepted Answer

The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. 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The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory costs. The total inventory costs are the sum of the ordering costs and the holding costs. The ordering costs are the costs of placing an order, and the holding costs are the costs of holding inventory. The EOQ is the quantity that minimizes the total inventory costs.The cycle length is the time between orders. The EOQ is the economic order quantity, which is the

Question 15

Scenario 9.1
The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year.
-Use the information in Scenario 9.1.What are the total annual holding and ordering costs if Talbot orders using the EOQ quantity?

Accepted Answer

The EOQ formula is:
EOQ = sqrt([2DS]/[H])

where:
D = annual demand = 8,000 units
S = cost per order = $50
H = holding cost per unit per year = $20

Plugging in the given values, we get:
EOQ = sqrt([2*8,000*$50]/[$20]) = 400 units

The total number of orders placed is:
8,000/400 = 20 orders

The total annual ordering cost is:
20*$50 = $1,000

The average inventory level is:
EOQ/2 = 200 units

The total annual holding cost is:
200*$20 = $4,000

Therefore, the total annual holding and ordering costs is:
$1,000 + $4,000 = $5,000.

So, the best choice is C, as the total cost is greater than $2,500 but less than or equal to $5,000.

Question 16

The Lemming Company implements an aggressive marketing campaign and effectively doubles the annual demand for Model 13s.Their total annual holding cost should:

Accepted Answer

The answer of The Lemming Company implements an aggressive marketing...

Question 17

A company operating under an EOQ policy enjoys rising annual demand for their products for three consecutive years.During this time their holding cost and ordering cost remain constant.Which statement is best?

Accepted Answer

The EOQ formula assumes that demand is constant and does not account for changes in demand. Therefore, as demand increases over three years, the order quantity will need to increase to meet this demand. However, since the holding and ordering costs remain constant, the optimal time between orders will decrease to minimize these costs. Therefore, the order quantity will rise but the time between orders will fall.

Question 18

Scenario 9.2
The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes.One of these gear assemblies,the "Smooth Shifter",is used for the two most expensive of Burdell's four models,and has an estimated annual demand of 300 units.Burdell estimates the cost to place an order is $40,and the holding cost for each assembly is $60 per year.The company operates 250 days per year.
-Use the information in Scenario 9.2.What is the economic order quantity for the Smooth Shifter?

Accepted Answer

The answer of Scenario 9.2
The Burdell Company is a small...

Question 19

Vilas 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% 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 Vilas County Hospital consumed 400 boxes of...

Question 20

Which one of the following statements regarding the economic order quantity (EOQ)is TRUE?

Accepted Answer

The economic order quantity (EOQ) model calculates the optimal order size that minimizes the sum of annual holding cost and annual ordering cost. When an order quantity is larger than the EOQ, the annual holding cost for cycle inventory exceeds the annual ordering cost, causing costs to increase. Therefore, it is optimal to order the EOQ to minimize total inventory costs. The other statements are incorrect. The EOQ model assumes a constant demand pattern, not a variable one (choice C). The EOQ model is used for single-item orders to a single supplier, not for combining different orders to the same supplier (choice A). When the interest rate drops, the inventory holding cost decreases but the EOQ does not necessarily decrease (choice D).

Quiz 9: Supply Chain Inventory Management

Which one of the following is not an assumption of the EOQ model?

You have taken a job in industry and are facing your first ordering decision.As you prepare to place the order,you remember your instructor teaching you that you wouldn't use the EOQ formula if:

The Lemma Company manufactures and sells 10 products.Ways have been found to cut both the setup and inventory holding costs in half.What effect will this have on the economic order quantities of the 10 products?

Sensitivity analysis on the economic order quantity (EOQ) formula can help the operations manager answer several questions on how to manage inventories.Which one of the following questions is NOT answered by EOQ sensitivity analysis?

Which one of the following statements concerning the economic order quantity (EOQ) is TRUE?

Which one of the following statements concerning the economic order quantity (EOQ) model is TRUE?

The Lemming Company implements an aggressive marketing campaign and effectively doubles the annual demand for Model 13s.Their total annual holding cost should:

A company operating under an EOQ policy enjoys rising annual demand for their products for three consecutive years.During this time their holding cost and ordering cost remain constant.Which statement is best?

Which one of the following statements regarding the economic order quantity (EOQ) is TRUE?