Question 1

The soft goods department of a large department store sells 175 units per month of a certain large bath towel.The unit cost of a towel to the store is $2.50 and the cost of placing an order has been estimated to be $12.00.The store uses an inventory carrying charge of I = 27% per year.Determine (a)the optimal order quantity,(b)the order frequency,and (c)the annual holding and setup cost.If,through automation of the purchasing process,the ordering cost can be cut to $4.00,what will be (d)the new economic order quantity,(e)the order frequency,and (f)annual holding and setup costs? Explain these results.

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Question 2

Consider two inventory problems with identical demand,holding cost,and setup cost.In one,goods arrive instantly,but in the other goods arrive at a measurable rate.Which of these problems will have the larger optimal order quantity? Why?

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Question 3

A firm that makes electronic circuits has been ordering a certain raw material 250 ounces at a time.The firm estimates that carrying cost is I = 30% per year,and that ordering cost is about $20 per order.The current price of the ingredient is $200 per ounce.The assumptions of the basic EOQ model are thought to apply.For what value of annual demand is their action optimal?

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Question 4

In the production order quantity model,the fraction of inventory that is used immediately and not stored is represented by the ratio of ________.

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Question 5

In some inventory models,the optimal behavior occurs where ordering costs and carrying costs are equal to one another.Provide an example of a model where this rule does not hold; explain how the model's results are optimal anyway.

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Question 6

The Rushton Trash Company stocks,among many other products,a certain container,each of which occupies four square feet of warehouse space.The warehouse space currently available for storing this product is limited to 600 square feet.Demand for the product is 15,000 units per year.Holding costs are $4 per container per year.Ordering costs are $5 per order.
(a)What is the cost-minimizing order quantity decision for Rushton?
(b)What is the total inventory-related cost of this decision?
(c)What is the total inventory-related cost of managing the inventory of this product,when the limited amount of warehouse space is taken into account?
(d)What would the firm be willing to pay for additional warehouse space?

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Question 7

What is a reorder point?

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Question 8

How sensitive is the EOQ to variations in demand or costs?

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Question 9

A(n)________ model gives satisfactory answers even with substantial variations in its parameters.

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Question 10

Given the following data: D=65,000 units per year,S = $120 per setup,P = $5 per unit,and I = 25% per year,(a)calculate the EOQ,and (b)calculate annual costs of holding and setup following EOQ behavior.

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Question 11

A printing company estimates that it will require 1,000 reams of a certain type of paper in a given period.The cost of carrying one unit in inventory for that period is 50 cents.The company buys the paper from a wholesaler in the same town,sending its own truck to pick up the orders at a fixed cost of $20.00 per trip.Treating this cost as the order cost,(a)what is the optimum number of reams to buy at one time? (b)How many times should lots of this size be bought during this period? (c)What is the minimum cost (holding and setup)of maintaining inventory on this item for the period? (d)Of this total cost,how much is carrying cost and how much is ordering cost?

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Question 12

Lead time for one of Montegut Manufacturing's fastest moving products is 4 days.Demand during this period averages 100 units per day.What would be an appropriate re-order point?

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Question 13

What are the assumptions of the EOQ model?

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Question 14

Montegut Manufacturing produces a product for which the annual demand is 10,000 units.Production averages 100 units per day,while demand is 40 units per day.Holding costs are $2.00 per unit per year,and setup cost is $200.00.(a)If the firm wishes to produce this product in economic batches,what size batch should be used? (b)What is the maximum inventory level? (c)How many order cycles are there per year? (d)What are the total annual holding and setup costs?

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Question 15

The annual demand,ordering cost,and the annual inventory carrying cost rate for a certain item are D = 600 units,S = $20/order and I = 30% of item price.Price is established by the following quantity discount schedule.What should the order quantity be in order to minimize the total annual cost?

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Question 16

________ is extra stock that is carried to serve as a buffer.

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Question 17

Central University uses $123,000 of a particular toner cartridge for laser printers in the student computer labs each year.The purchasing director of the university estimates the ordering cost at $45 and thinks that the university can hold this type of inventory at an annual storage cost of 22% of the purchase price.How many months' supply should the purchasing director order at one time to minimize the total annual cost of purchasing and carrying?

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Question 18

In a quantity discount problem,if the savings in annual product cost is smaller than the increase in the sum of annual setup cost and annual holding cost,the discount should be ________.

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Question 19

Compare the assumptions of the production order quantity model to those of the basic EOQ model.

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Question 20

A toy manufacturer makes its own wind-up motors,which are then put into its toys.While the toy manufacturing process is continuous,the motors are intermittent flow.Data on the manufacture of the motors appears below.
Annual demand (D)= 50,000 units Daily subassembly production rate = 1,000
Setup cost (S)= $85 per batch Daily subassembly usage rate = 200
Carrying cost = $.20 per unit per year
(a)To minimize cost,how large should each batch of subassemblies be?
(b)Approximately how many days are required to produce a batch?
(c)How long is a complete cycle?
(d)What is the average inventory for this problem?
(e)What is the total annual inventory cost (holding plus setup)of the optimal behavior in this problem?

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Quiz 13: Inventory Management