Exam 6: Inventory Control Models

Theft is one of the "ordering cost factors."

Andre Candess manages an office supply store. One product in the store is computer paper. Andre knows that 10,000 boxes will be sold this year at a constant rate throughout the year. There are 250 working days per year and the lead-time is 3 days. The cost of placing an order is $30, while the holding cost is $15 per box per year. If Andre orders 500 boxes each time he orders from his supplier, what would his total annual inventory cost be (holding cost plus ordering cost)?

Sensitivity analysis of EOQ refers to

The same ratio of marginal loss to the sum of marginal loss and marginal profit is used to solve one-period inventory models for both discrete and continuous probability distributions.

We can usually determine an appropriate safety stock even if we are unable to accurately assess the actual cost of a stockout.

Explain the basic difference(s) between the simple EOQ model and the production run model.

R. C. Barker makes purchasing decisions for his company. One product that he buys costs $50 per unit when the order quantity is less than 500. When the quantity ordered is 500 or more, the price per unit drops to $48. The ordering cost is $30 per order and the annual demand is 7,500 units. The holding cost is 10 percent of the purchase cost. If R. C. wishes to minimize his total annual inventory costs, he must evaluate the total cost for two possible order quantities. What are these two possible quantities? (Round answer to nearest unit.)

A person is using the normal distribution to determine the safety stock for a product. What z value would be associated with a 90 percent service level?

Andre Candess manages an office supply store. One product in the store is computer paper. Andre knows that 10,000 boxes will be sold this year at a constant rate throughout the year. There are 250 working days per year and the lead-time is 3 days. The cost of placing an order is $30, while the holding cost is $15 per box per year. How many units should Andre order each time?

Inventory

The production run model is useful when a firm purchases inventory that is delivered over a period of time.

The annual demand for a product is 1,000 units. The company orders 200 units each time an order is placed. The lead-time is 6 days. There are 250 working days per year. If the reorder point is 50, what safety stock are they using?

Anne Beck recently took over a beauty supply store. Her predecessor always ordered shampoo in quantities of 100 units. Anne is reevaluating this policy. Based on her analysis, the cost to place each order is $35 and the holding cost is $8 per shampoo bottle per year. The annual demand for this product is 2500 bottles. Should Anne change the current order policy and, if so, how much can she save?

Judith Thompson is the manager of the student center cafeteria. She is introducing pizza as a menu item. The pizza is ordered frozen from a local pizza establishment and baked at the cafeteria. Judith anticipates a weekly demand of 10 pizzas. The cafeteria is open 45 weeks a year, 5 days a week. The ordering cost is $15 and the holding cost is $0.40 per pizza per year. What is the optimal number of pizzas Judith should order?

Which of the following is not an assumption for the basic EOQ model?

Consider the material structure tree for item A below. If 20 units of A are needed, how many units of D are needed?

The annual demand for a product has been projected at 2,000 units. This demand is assumed to be constant throughout the year. The ordering cost is $20 per order, and the holding cost is 20 percent of the purchase cost. The purchase cost is $40 per unit. There are 250 working days per year. Whenever an order is placed, it is known that the entire order will arrive on a truck in 6 days. Currently, the company is ordering 500 units each time an order is placed. What level of safety stock would give a reorder point of 60 units?

Demand for local newspapers in King County during weekdays is normally distributed with a mean of 500 and standard deviation of 100. The marginal loss per paper is $0.10 and marginal profit is $0.40. How many newspapers should the local publisher produce each day?

Ivonne Callen sells beauty supplies. Her annual demand for a particular skin lotion is 1,000 units. The cost of placing an order is $20, while the holding cost per unit per year is 10 percent of the cost. This item currently costs $10 if the order quantity is less than 300. For orders of 300 units or more, the cost falls to $9.80. To minimize total cost, how many units should Ivonne order each time she places an order? What is the minimum total cost?

Rolf Steps is the production manager for a local manufacturing firm. This company produces staplers and other items. The holding cost is $2 per unit per year. The cost of setting up the production line for this is $25. There are 200 working days per year. The production rate for this product is 80 per day. If the production order quantity is 200 units, what was the daily demand (rounded to the nearest whole unit)?