Exam 10: Inventory Models

​If lead time is longer than the review period, the order quantity at any review point is the amount needed for the inventory on hand plus all outstanding orders to reach the replenishment level.

Kellam Images prints snack food bags on long rolls of plastic film. The plant operates 250 days a year. The daily production rate is 6000 bags, and the daily demand is 3500 bags. The cost to set up the design for printing is $300. The holding cost is estimated at 2 cents per bag. a.What is the recommended production lot size? b.If there is a five-day lead time to set up the line, what is the recommended reorder point?

The EOQ model is insensitive to small variations or errors in the cost estimates.

The Fitness Shop is considering ordering a special model exercise machine. Each unit will cost the shop $410 and it will sell for $750. Any units not sold at the regular price will be sold at the year-end model clearance for $340. Assume that demand follows a normal probability distribution with μ = 20 and σ = 6. What is the recommended order quantity?

Annual purchase cost is included in the total cost in

In the periodic review model, the order quantity at each review period must be sufficient to cover demand for the review period plus the demand for the following lead time.

The single-period inventory model is most applicable to items that are perishable or have seasonal demand.

​Derive and explain the total cost expression for the EOQ model.

When the reorder point r exceeds Q*, the difference is

A gourmet food store uses a one-week periodic review system for its supply of coffee beans. There is a five-day lead time for orders, and the store will allow two stockouts per year. a.What is the probability of a stockout associated with each replenishment decision? b.What is the replenishment level if demand during the review and lead-time periods is normally distributed with mean 120 pounds and standard deviation 8 pounds? c.How many pounds of beans should be ordered if there are 42 pounds of beans on hand?

An assumption in the economic production lot size model is that there is storage capacity to hold the entire production lot.

​What could be meant by service level? Why is a clear understanding of this term important?

The objective of the EOQ with quantity discounts model is to

Constant demand is a key assumption of the EOQ model.

Every year in early October Steven King buys pumpkins of one size from a farmer in Maine and then hires an artist to carve bewitching faces in them. He then tries to sell them at his produce stand in a public market in Boston. The farmer charges Steven $2.50 per pumpkin and the artist is paid $2.00 per carved pumpkin. Steven sells a carved pumpkin for $8.00. Any pumpkins not sold by 5:00 p.m. on Halloween are donated to Steven's favorite children's hospital. Steven pays the artist $0.75 per pumpkin to rush the pumpkins to the hospital for the youngsters to enjoy. Steven estimates the demand for his pumpkins this season to be uniformly distributed within a range of 30 to 70. a.How many pumpkins should Steven have available for sale? b.Based on your answer to (a), what is the probability that Steven will be short five or more pumpkins?

Zip Games purchases blank DVD disks onto which it copies its software for sale through its mail order operation. A disk costs Zip $.20. Processing an order for more disks cost $15. Zip uses 60000 disks annually, and the company has a 25% cost of capital. a.Find the optimal order quantity. b.How many orders are placed annually? c.How frequently will orders be placed?

If the optimal production lot size decreases, average inventory increases.

Periodic review systems require smaller safety stock levels than corresponding continuous review systems.

​Explain the difference between a periodic and a continuous review system.

When quantity discounts are available, order an amount from the highest discount category.