Exam 16: Performance Evaluation and Compensation

Managers need to know that parts will be available when needed by production and that products will be available when customers are ready to purchase.

The economic order quantity is the minimum point on the total cost curve. This is the order quantity (or re-order quantity) that will minimize:

LAMA Creations creates sweaters using the wool of the Llama. The wool used in the manufacturing process is ordered by the bundle. LAMA requires 1,200 bundles of Llama wool per year and places orders of 100 bundles at a time. The cost of ordering is $80.00 per order and the carrying cost per bundle is $3.50. What are LAMA Creations' ordering costs?

Companies prefer to avoid inventory shortfalls to avoid all of the following except:

When the EOQ model is a good fit for inventory usage and demand, it does provide a minimum cost re-order quantity.

In establishing a re-order point, managers must consider all the factors below except:

An additional assumption of the EOQ model is that demand for inventory or the usage rate of raw materials inventory fluctuates.

An assumption of economic order quantity is that demand is steady. An increase in demand or usage rates will lead to:

The re-order point tells managers when to place an order or start production.

An assumption of economic order quantity is that demand is steady. A decrease in demand or usage rates will lead to:

Titan Company, a distributor of high quality pens, carries a safety stock of pens. If the maximum daily usage is 70, the average daily rate of usage is 50 pens per day and the number of lead days of 5 required by the supplier. What is the safety stock of pens?

A supplier of Titan pens has released a new volume discount program offering a $2.00 discount per pen if orders are placed at 400 pens. What is the opportunity cost of order at an economic order quantity of 300 pens when annual demand is 4,500?

LAMA Creations creates sweaters using the wool of the Llama. The wool used in the manufacturing process is ordered by the bundle. LAMA requires 1,200 bundles of Llama wool per year and places orders of 100 bundles at a time. The cost of ordering is $80.00 per order and the carrying cost per bundle is $3.50. LAMA Creations' cost may change if the order quantity is increased from 100 bundles to 200 bundles at a time. What is the cost difference between the carrying costs with orders of 100 bundles as compared to orders of 200 bundles?

The economic order quantity may be used to determine all of the following except:

As discounts on inventory purchases are frequent in most industries, the standard economic order quantity and re-order point calculations incorporate quantity discounts.

The economic order quantity is the order quantity (or re-order quantity) that will average the combined ordering costs and carrying costs.

LAMA Creations creates sweaters using the wool of the Llama. The wool used in the manufacturing process is ordered by the bundle. LAMA requires 1,200 bundles of Llama wool per year and places orders of 100 bundles at a time. The cost of ordering is $80.00 per order and the carrying cost per bundle is $3.50. What are LAMA Creations' total costs of managing inventory?

LAMA Creations creates sweaters using the wool of the Llama. The wool used in the manufacturing process is ordered by the bundle. LAMA requires 1,200 bundles of Llama wool per year and places orders of 100 bundles at a time. The cost of ordering is $80.00 per order and the carrying cost per bundle is $3.50. LAMA Creations can take advantage of a quantity discounts of $3.00 per bundle if they order in lots of 500 bundles or more. What is the opportunity cost of ordering at EOQ level.

Safety stock is:

The cost of ordering is expressed as "Ordering Costs = A/Q x K" where K is: