Kelly opens an aquarium store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. She collects the following data about the pump's sales. $\begin{array} { l l } \text { Demand } = 10 \text { units per week } & \text { Store operates } 45 \text { weeks } / \text { year } \\ \text { Order cost } = \$ 30 / \text { order } & \text { Lead time } = 3 \text { weeks } \\ \text { Item cost } = \$ 80 / \text { pump } & \text { Standard deviation of weekly demand } = 4 \text { units } \\ \text { Inventory-holding cost } = 15 \% \text { per year } & \text { Desired service level } = 90 \text { percent } \end{array}$ -The economic order quantity (EOQ) rounded to the next highest number is:

A) less than 25 pumps. B) more than 25 but less than or equal to 35 pumps. C) more than 35 but less than or equal to 45 pumps. D) more than 45 but less than or equal to 55 pumps. A) less than 25 pumps. B) more than 25 but less than or equal to 35 pumps. C) more than 35 but less than or equal to 45 pumps. D) more than 45 but less than or equal to 55 pumps. D

A) can be calculated. B) is related to other stock-keeping units (SKUs). C) is also called finished-goods inventory. D) needs to be forecasted. A) can be calculated. B) is related to other stock-keeping units (SKUs). C) is also called finished-goods inventory. D) needs to be forecasted.

A) result from lost sales. B) have little financial impact. C) may occur as a result of a stockout. D) force a customer to purchase elsewhere. A) result from lost sales. B) have little financial impact. C) may occur as a result of a stockout. D) force a customer to purchase elsewhere.

Jony furniture store examines its inventory policy and considers using an economic order quantity (EOQ) approach. They have the following information about a table set: $\begin{array}{|l|l|} \hline\text { Annual demand } & 3,920 \text { sets } \\ \hline \text { Current order quantity } & 80 \text { sets } \\ \hline \text { Carrying cost } & \$ 80.00 / \text { set/year } \\\hline \text { Order cost } & \$ 200\\ \hline \end{array}$ a.What is the current total annual cost (TC)? b.What is the economic order quantity (EOQ)? c.What is the total annual cost at the economic order quantity (EOQ)?

The answer of Jony furniture store examines its inventory policy...

Exam 12: Managing Inventories

Kelly opens an aquarium store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. She collects the following data about the pump's sales. Demand =10 units per week Store operates 45 weeks / year Order cost =\ 30/ order Lead time =3 weeks Item cost =\ 80/ pump Standard deviation of weekly demand =4 units Inventory-holding cost =15\% per year Desired service level =90 percent -The economic order quantity (EOQ) rounded to the next highest number is:

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Question 1

Correct Answer:

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D

Given the information below, conduct an ABC analysis and suggest which items should be classified as A, B, and C. $\begin{array}{|c|c|c|}\hline\text { SKU } & \text { Annual Usage } & \text { Item Value }(\$) \\\hline 1 & 9,000 & 80.00 \\\hline 2 & 12,000 & 58.80 \\\hline 3 & 24,000 & 76.20 \\\hline 4 & 42,000 & 48.00 \\\hline 5 & 55,000 & 30.00 \\\hline 6 & 140,000 & 2.20 \\\hline 7 & 33,000 & 48.00 \\\hline 8 & 3,000 & 110.00 \\\hline\end{array}$

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Question 2

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$\begin{array}{|c|c|c|c|c|c|} \hline& \text { Annual } & \text { Item } & \text { Annual } & & \text { Percent of } \\\hline \text { SKU } & \text { Usage } & \text { Value }(\$) & \text { Dollar Usage } & \text { Cumulative } \$ & \text { Total } \$ \\\hline 4 & 42,000 & 48 & \$ 2,016,000.00 & \$ 2,016,000.00 & 22.1 \% \\\hline 3 & 24,000 & 76.2 & \$ 1,828,800.00 & \$ 3,844,800.00 & 42.1 \% \\\hline 5 & 55,000 & 30 & \$ 1,650,000.00 & \$ 5,494,800.00 & 60.1 \% \\\hline 7 & 33,000 & 48 & \$ 1,584,000.00 & \$ 7,078,800.00 & 77.4 \% \\\hline 1 & 9,000 & 80 & \$ 720,000.00 & \$ 7,798,800.00 & 85.3 \% \\\hline 2 & 12,000 & 58.8 & \$ 705,600.00 & \$ 8,504,400.00 & 93.0 \% \\\hline 8 & 3,000 & 110 & \$ 330,000.00 & \$ 8,834,400.00 & 96.6 \% \\\hline 6 & 140,000 & 2.2 & \$ 308,000.00 & \$ 9,142,400.00 & 100.0 \% \\\hline\end{array}$ From this table, an A item classification might be SKU #4, 3, 5, and 7, although this might be subject to some debate. C items appear to be SKU #8 and 6, while the remaining would probably be classified as B items.

Because of demanding customers, organizations must always maintain a 100 percent service level.

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Question 3

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False

Table 1 Peterson Enterprises uses a fixed order quantity inventory control system. The firm operates 50 weeks per year and has the following characteristics for an item: Demand $= 50,000$ units/year Ordering cost $= \$ 35 /$ order Inventory-carrying cost as a percent of item value $= 25 \%$ Item (Unit) value $= \$ 8$ Lead time $= 3$ weeks Standard deviation in weekly demand $= 125$ units -The total order and inventory-holding cost is:

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Question 4

The decision of how many fruit baskets to make for the holiday season would be analyzed using a single-period inventory model.

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Question 5

Which of the following statements is TRUE?

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Question 6

Inventory position is computed using all the following EXCEPT:

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Question 7

Graeme manages a candy store in a high traffic shopping mall where he has collected the following information: Weekly demand for small candy boxes = 90 boxes Cost to place one purchase order with the box supplier = $19.80 Cost to hold one box for one year in inventory = $2.45 ead time = 2 weeks Weeks in a year = 52 weeks -The current ordering policy for the candy store is 360 boxes so the average inventory level (i.e., cycle inventory) is:

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Question 8

Independent demand:

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Question 9

Backorders:

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Question 10

In ABC inventory analysis, which of the following is TRUE of class A items?

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Question 11

Louisa, the owner of a garden supply store was wondering if she could manage the inventory better. She has decided to develop an ABC classification system to help manage the inventory. The company's inventory consists of the following items: Garden Tool Cost Quarterly Demand (units) Shovel \ 5.00 1,000 Edger \ 25.00 6 Weeder \ 6.00 400 Hose \ 20.00 800 Cutters \ 4.00 100 Sprinkler \ 7.00 800 Hedge Trimmer \ 5.00 5,000 Spreader \ 15.00 6 Sprayer \ 12.00 20 Clippers \ 8.00 15 a.Compute the total dollar value of each of the ten inventory items. What is the total value of all the inventory items? b.Which items should be declared "A" items? What percentage of total inventory value does "A" group represent? What percentage of the total number of inventory items does "A" group represent? c.Which items should be declared "B" items? What percentage of total inventory value does "B" group represent? What percentage of the total number of inventory items does "B" group represent? d.Which items should be declared "C" items? What percentage of total inventory value does "C" group represent? What percentage of the total number of inventory items does "C" group represent?

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Question 12

Jony furniture store examines its inventory policy and considers using an economic order quantity (EOQ) approach. They have the following information about a table set: Annual demand 3,920 sets Current order quantity 80 sets Carrying cost \ 80.00/ set/year Order cost \ 200 a.What is the current total annual cost (TC)? b.What is the economic order quantity (EOQ)? c.What is the total annual cost at the economic order quantity (EOQ)?

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Question 13

Because the fixed-quantity system orders the same amount each time, time between orders will be constant, even with variable demand.

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Question 14

Graeme manages a candy store in a high traffic shopping mall where he has collected the following information: Weekly demand for small candy boxes = 90 boxes Cost to place one purchase order with the box supplier = $19.80 Cost to hold one box for one year in inventory = $2.45 ead time = 2 weeks Weeks in a year = 52 weeks -The optimal replenishment level for the given fixed-period system (FPS) is:

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Question 15

Hardy Hospital is implementing the economic order quantity (EOQ) inventory control system, and they need a good cost estimate to process a purchase order (PO). It takes 4 total labor hours to process a PO. The average number of stock-keeping units (SKUs) on a PO is 4. The average wage for people working in the purchasing department is $22 per hour, plus employee benefits of $3 per hour. Fixed costs for the purchasing department are $300,000 per year assuming 2,000 hours per employee per year workweek. From the given information what is a good estimate of order cost (Co) to use in the EOQ model?

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Question 16

Jacob manages a candy store in a high traffic shopping mall. He has collected the following information: Weekly demand for small candy boxes $= 100$ boxes Cost to place one purchase order with the box supplier $= \$ 15.80$ Cost to hold one box for one year in inventory $= \$ 3.45$ Lead time $= 3$ weeks Weeks in a year $= 52$ weeks Answer the next four questions based on the given data. a.What is the economic order quantity (EOQ)? b.What is the average inventory level (i.e., cycle inventory)? c.What is the total annual order and inventory-holding cost? d.If a fixed-period system (FPS) is adopted, what is the replenishment level (M) without safety stock?

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Question 17

In a fixed-quantity system (FQS), as the reorder point increases:

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Question 18

Explain the ABC inventory classification.

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Question 19

In the single-period inventory model, the optimal order quantity is solved using:

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Question 20

Because of demanding customers, organizations must always maintain a 100 percent service level.

The decision of how many fruit baskets to make for the holiday season would be analyzed using a single-period inventory model.

Which of the following statements is TRUE?

Inventory position is computed using all the following EXCEPT:

Independent demand:

Backorders:

In ABC inventory analysis, which of the following is TRUE of class A items?

Because the fixed-quantity system orders the same amount each time, time between orders will be constant, even with variable demand.

In a fixed-quantity system (FQS), as the reorder point increases:

Explain the ABC inventory classification.

In the single-period inventory model, the optimal order quantity is solved using:

Goods, Services, and Operations Management

Value Chains

Measuring Performance in Operations

Operations Strategy

Technology and Operations Management

Goods and Service Design

Process Selection, Design, and Analysis

Facility and Work Designs

Supply Chain Design

Capacity Management

Forecasting and Demand Planning

Resource Management

Operations Scheduling and Sequencing

Quality Management

Appendix: Quality Management

Quality Control and Spc

Appendix: Queuing Analysis

Appendix: Modeling Using Linear Programming

Lean Operating Systems

Appendix: Simulation

Project Management

Appendix: Decision Analysis

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