Exam 20: Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

One of the traditional reasons for holding finished goods inventories is to ensure a firm's ability to meet delivery dates. The JIT solution is to

Comfy Wheels Bus Company produces buses. In order to produce the seats for the buses, special equipment must be set up. The setup cost per frame is $35. The cost of carrying seats in inventory is $6 per seat per year. The company produces 90,000 buses per year. Total carrying costs (rounded to the nearest dollar) associated with the economic order quantity are

JIT uses long-term contracts, continuous refilling, and electronic data interchanges to reduce or eliminate ordering costs.

Which of the following equations determines the total annual ordering costs?

One of the traditional reasons for holding inventory is to avoid shutdowns due to defective parts. The JIT solution is to

Olga Company has an economic order quantity for item B of 100 units. The annual demand for the product is 1,400 units, and the unit carrying cost per year is $7. What is the cost of placing an order?

Grapevine Incorporated produces two different barrels used in wine making. (X and Y) The company has three processes, cutting, forming, and curing. In cutting, the wood is cut to size and prepared for forming. In forming, the wood is bent to shape and connected together to form the barrel. In curing, the seams are finished and the oak is left to process. In cutting, setup time is 1/2 hour. The other two processes do not have any setup time. The demand for Component X is 90 units per day and the demand for Component Y is 240 units per day. The minutes required per unit for each component are as follows: Cutting Forming Curing Component X 30 12 8 Component Y 20 15 6 The company operates one 8-hour shift. The cutting process employs 10 workers. Two hours of their time is used for setup. The forming process is the most labor intensive and has 15 workers. The curing department is not labor intensive-the only significant unit-level variable costs are materials and power. The department only employs 6 associates. For component X, the variable cost is $40 per unit and for Component Y, it is $30 per unit. The selling price per barrel is $95 for Component X and $80 for Component Y. Required: a.Calculate the estimated daily potential profit. b.Calculate the resources available in minutes for each area. c.Calculate the resources demanded in minutes for each area and identify any bottlenecks. d.What is the contribution margin per unit of bottleneck resource and what does that imply?

Theory of constraints focuses on what three operation measures of system performance?

Southwestern Supply Company has an economic order quantity for item A of 200 units. The annual demand for the product is 5,000 units, and the cost of placing an order is $8. If the company operates 200 days a year and the lead time for the item is five days, what is the reorder point if a safety stock of 50 units is maintained?

The theory of constraints identifies a company's constraints and exploits them.

Firms face limited resources and limited demand for their products called constraints.

Moriah's Candle Company manufactures candles. The company buys wax in 45-Kilogram containers that cost $17 each. The company uses 25,000 containers per year, and usage occurs evenly throughout the year. The average cost to carry a 45-Kilogram container in inventory per year is $3, and the cost to place an order is $9. The company works 250 days per year. The lead time is 4 working days, the average rate of usage is 60 containers per day, and the company carries a safety stock of 25 containers. What is the reorder point?

The ordering of small, frequent orders

Albuquerque Company has the following information available concerning one of its inventory items: Cost of placing an or der \ 50.00 Unit carrying cost per year \ 2.00 Annual unit demand 3,200 Safety stock 80 Average daily demand 10 Normal lead time in days 12 The economic order quantity for this item is

Which of the following reduces lead time to meet delivery dates by reducing setup times?

Montgomery Company produces A and B with contribution margins per unit of $40 and $30, respectively. Only 500 labor hours and 300 machine hours are available for production. Time requirements to produce one unit of A and B are as follows: Product A Product B Labor hours per unit 6 3 Machine hours per unit 2 5 What is the constraint on labor hours for Montgomery Company?

Walrus Company has the following information available concerning one of its inventory items: Cost of placing an or der \ 30.00 Unit carrying cost per year \ 3.00 Annual unit demand 6,625 Safety stock 125 Average daily demand 25 Normal lead time in days 10 The reorder point for the inventory item is

Olga Company has an economic order quantity for item B of 100 units. The annual demand for the product is 1,400 units, and the unit carrying cost per year is $7. The company operates 200 days a year, the lead time for the item is ten days, and the safety stock is 100 units. What is the reorder point?

Which of the following elements could be determined by using the economic order quantity formula?

Citrine Company manufactures two products, X and Y. The company has 200 pounds of materials and 500 direct labor hours available for production. The time requirements and contribution margins per unit are as follows: Froduct Product Y Contribution margin per unit \ 10 \ 8 Materials per unit (lbs.) 4 5 Direct labor hours per unit 2 4 Which of the following is the equation for the constraint on direct labor?