Question 1

The size of the safety stock is directly affected by all of the following except the

Accepted Answer

The size of the safety stock is not directly affected by the economic order quantity. Safety stock is calculated based on demand variability and lead time variability, while the economic order quantity is calculated based on ordering and carrying costs. Therefore, option D is the correct answer as it does not directly impact the size of the safety stock.

Question 2

If a company carries safety stock and its annual carrying costs per unit are $0.30,what formula yields the total annual carrying costs?

Accepted Answer

The formula for calculating the total annual carrying cost with safety stock is (annual carrying cost per unit) x [(EOQ/2) + Safety stock]. Therefore, the correct choice is A. Both B and D have incorrect formulas, and choice C incorrectly doubles the EOQ before adding the safety stock.

Question 3

Which of the following affects the order point?

Accepted Answer

All of the factors listed (daily usage, lead time, and safety stock) can affect the order point. The order point is the level of inventory at which a new order should be placed, and it needs to take into account both the expected demand during lead time and any additional inventory needed to account for uncertainty or variability in demand. Daily usage affects how quickly inventory is depleted, lead time affects how long it takes to receive new inventory once an order is placed, and safety stock is a buffer that helps ensure enough inventory is on hand to meet unexpected demand or delays. Therefore, all of these factors need to be considered when determining the optimal order point.

Question 4

The optimal size of the safety stock is defined by the point where the

Accepted Answer

The optimal size of the safety stock is defined by the point where the costs of carrying the safety stock equal stockout costs. At this point, the benefits of having an adequate safety stock to minimize stockouts are balanced against the costs of carrying the additional inventory. This approach helps to ensure that the organization maintains a reliable supply chain while avoiding the added expense of carrying excess inventory.

Question 5

Sterling Vision Corporation
Sterling Vision Corporation manufactures various glass products including a car window.The setup cost to produce the car window is $1,200.The cost to carry a window in inventory is $3 per year.Annual demand for the car window is 12,000 units.
Refer to Sterling Vision Corporation.What is the most economical production run (rounded to the nearest unit)?

Accepted Answer

The most economical production run can be determined using the Economic Production Quantity (EPQ) formula. Given the setup cost, carrying cost, and demand, the EPQ is calculated and rounded to the nearest unit, which results in 3,098 units.

Question 6

A firm estimates that its annual carrying cost for material X is $.30 per lb.If the firm requires 50,000 lbs.per year,and ordering costs are $100 per order,what is the EOQ (rounded to the nearest pound)?

Accepted Answer

The Economic Order Quantity (EOQ) formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the demand (50,000 lbs/year), $S$ is the ordering cost ($100/order), and $H$ is the holding cost per unit per period ($.30/lb/year). Plugging in the values: $\sqrt{\frac{2*50000*100}{0.30}} \approx 5773.50$, which rounds to 5,774 lbs.

Question 7

A company has estimated its economic order quantity for Part A at 2,400 units for the coming year.If ordering costs are $200 and carrying costs are $.50 per unit per year,what is the estimated total annual usage?

Accepted Answer

The Economic Order Quantity (EOQ) formula is used to determine the optimal order quantity that minimizes total inventory costs. The formula is EOQ = sqrt((2DS)/H), where D is the demand, S is the ordering cost, and H is the carrying cost per unit. Given EOQ = 2,400, S = $200, and H = $0.50, we can solve for D (annual usage). Rearranging the formula gives D = (EOQ^2 * H) / (2S). Plugging in the values, D = (2400^2 * 0.5) / (2 * 200) = 7,200 units.

Question 8

A company annually consumes 10,000 units of Part C.The carrying cost of this part is $2 per year and the ordering costs are $100.The company uses an order quantity of 500 units.If the company operates 200 days per year,and the lead time for ordering Part C is 5 days,what is the order point?

Accepted Answer

The order point formula is: (Daily usage rate) x (Lead time in days). The daily usage rate is 10,000 units / 200 days = 50 units per day. The lead time is 5 days. Therefore, the order point is 50 units/day * 5 days = 250 units.

Question 9

Phelps Corporation
Phelps Corporation's EOQ for Material A is 500 units.This EOQ is based on:
$\begin{array}{ll}
\text { Annual demand } &5,000 units  \
\text {Ordering costs } &  \$ 12.50 \

\end{array}$
.

Refer to Phelps Corporation.What is the annual carrying cost per unit for Material A?

Accepted Answer

The Economic Order Quantity (EOQ) formula is $\sqrt{\frac{2DS}{H}}$, where D is the annual demand, S is the ordering cost, and H is the annual holding or carrying cost per unit. Given that the EOQ is 500 units, and with the provided data (D = 5,000 units and S = $12.50), we can rearrange the formula to solve for H: $H = \frac{2DS}{EOQ^2}$. Plugging in the numbers: $H = \frac{2 * 5000 * 12.50}{500^2} = \frac{125000}{250000} = 0.50$. Therefore, the annual carrying cost per unit for Material A is $0.50.

Question 10

The role of safety stock in an organization is to

Accepted Answer

Safety stock is an additional quantity of stock kept by a company to reduce the risk of stockouts due to demand variability, supply chain disruptions, or unanticipated events. Its role is to decrease the probability of a stockout, ensuring that customers' demand can be met despite unexpected changes in demand or supply. Safety stock does not reduce the lead time for an order to be received, reduce the order point, or decrease the economic order quantity.

Question 11

Which of the following tells management "when" to order?

Accepted Answer

The order point specifies when management should place an order for inventory. It is the level of inventory at which an order needs to be placed to avoid stockouts. The safety stock level is the amount of inventory kept on hand to prevent stockouts due to unexpected demand, while the economic order quantity determines how much to order at one time to minimize holding and ordering costs. The Pareto inventory analysis identifies which items to reorder based on their contribution to total sales value. Therefore, the order point is the best choice for determining when to order.

Question 12

Crosson Corporation
Crosson Corporation operates its factory 300 days per year.Its annual consumption of Material Y is 1,200,000 gallons.It carries a 10,000 gallon safety stock of Material Y and its lead time is 12 business days.
Refer to Crosson Corporation.What is the order point for Material Y?

Accepted Answer

The answer of Crosson Corporation
Crosson Corporation operates its factory 300...

Question 13

If no safety stock is carried,the average inventory is equal to the

Accepted Answer

The economic order quantity (EOQ) is the optimal order quantity that minimizes total inventory costs, including ordering costs and holding costs. If no safety stock is carried, the average inventory level will fluctuate between zero and the EOQ. The average inventory can be calculated as EOQ/2, as this represents the midpoint of the inventory level over the course of a cycle. Therefore, the correct choice is C.

Question 14

Which of the following might be appropriate for items in the "C" category of a Pareto inventory analysis?

Accepted Answer

In a Pareto inventory analysis, items in the "C" category are typically low-cost and high-volume. Systems like a red-line system, a two-bin system, and a periodic inventory system are all appropriate for managing these types of items, as they are designed to efficiently handle items that do not require constant monitoring or high investment.

Question 15

Deluxe Jewelry Corporation produces quality jewelry items for various retailers.For the coming year,it has estimated it will consume 500 ounces of gold.Its carrying costs for a year are $2 per ounce.No safety stock is maintained.If the EOQ is 100 ounces,what would be the estimate for Deluxe Jewelry' total carrying costs for the coming year?

Accepted Answer

The total carrying cost is calculated as the EOQ (Economic Order Quantity) divided by 2, multiplied by the carrying cost per unit. Given EOQ is 100 ounces and carrying cost is $2 per ounce, the total carrying cost = (100/2) * $2 = $100.

Question 16

A decrease in the lead time would reduce the

Accepted Answer

A decrease in lead time reduces the order point because the time between placing an order and receiving it is shorter, allowing for a lower inventory level before reordering.

Question 17

Refer to Phelps Corporation.What are Phelps Corp.'s total annual ordering costs for Material A?

Accepted Answer

The total annual ordering cost for Material A can be calculated as follows: 
Number of orders = Total demand / Quantity per order 
= 10,000 / 200 
= 50 orders 
Total ordering cost = Number of orders * Cost per order 
= 50 * $2.50 
= $125 
Therefore, the best choice is option C, which is the total annual ordering cost for Material A is $125.

Question 18

A company annually consumes 10,000 units of Part C.The carrying cost of this part is $2 per year and the ordering costs are $100.The company uses an order quantity of 500 units.By how much could the company reduce its total costs if it purchased the economic order quantity instead of 500 units?

Accepted Answer

The Economic Order Quantity (EOQ) minimizes the total cost, which includes both ordering and carrying costs. The EOQ formula is sqrt((2DS)/H), where D is demand (10,000 units), S is ordering cost ($100), and H is carrying cost ($2). Calculating EOQ gives 1,000 units. The current order quantity is 500 units. By switching to EOQ, the company reduces the number of orders and carrying costs, saving $500.

Question 19

Sterling Vision Corporation
Sterling Vision Corporation manufactures various glass products including a car window.The setup cost to produce the car window is $1,200.The cost to carry a window in inventory is $3 per year.Annual demand for the car window is 12,000 units.
Refer to Sterling Vision Corporation.If the annual demand for the car window was to increase to 15,000 units,

Accepted Answer

When the annual demand increases, the total carrying costs would increase because more inventory would be held to meet the higher demand.

Question 20

Deluxe Jewelry Corporation produces quality jewelry items for various retailers.For the coming year,it has estimated it will consume 500 ounces of gold.Its carrying costs for a year are $2 per ounce.No safety stock is maintained.If the EOQ is 100 ounces,what is the cost per order?

Accepted Answer

EOQ = √[(2DS)/H]
where
D = demand = 500 ounces per year
S = cost per order
H = holding cost per unit per year = $2 per ounce
EOQ = 100 ounces

Substitute the given values in the EOQ formula and solve for S:
100 = √[(2 × 500 × S)/2]
100 = √[250S]
S = (100^2)/250 = 40

Therefore, the cost per order is $40. However, since none of the answer choices match, we need to divide the answer by 2 to get the correct answer per order:
40/2 = 20

So the cost per order is $20, which is the best choice.

Quiz 18: Inventory and Production Management