Question 1

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 2

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 3

In some inventory models,the optimal behavior occurs when 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 4

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 5

The annual demand,ordering cost,and the annual inventory carrying cost rate for a certain item are  ,  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 6

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 7

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

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Question 8

Identify several forms of quantity discounts other than the standard all-units quantity discount.

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Question 9

In the EOQ model,for a given level of demand,annual holding cost is larger as the order quantity is ________.

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Question 10

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

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Question 11

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 12

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 13

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 reorder point?

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Question 14

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

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Question 15

What are the assumptions of the EOQ model?

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Question 16

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 17

What is a reorder point?

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Question 18

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 19

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 20

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

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Quiz 12: Inventory Management