Exam 12: Managing Inventories

Table 1 Jackson 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 $=20,000$ units/year Ordering cost $=\$ 45 /$ order Inventory-carrying cost as a percent of item value $=25 \%$ Item (Unit) value $=\$ 20$ Lead time $=5$ weeks Standard deviation in weekly demand $=125$ units -Using the information in Table 1, calculate the economic order quantity (EOQ) for this item?

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

Table 1 Jackson 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 $=20,000$ units/year Ordering cost $=\$ 45 /$ order Inventory-carrying cost as a percent of item value $=25 \%$ Item (Unit) value $=\$ 20$ Lead time $=5$ weeks Standard deviation in weekly demand $=125$ units -The total order and inventory-holding cost for the economic order quantity (EOQ) is:

Which of the following statements is NOT TRUE regarding the fixed-period system (FPS)?

When a customer is unwilling to wait for an item that is not in stock and purchases the item elsewhere, a backorder has occurred.

_____ inventory consists of partially completed products in various stages of completion that are awaiting further processing.

What are the four categories of inventory costs?

Cynthia Baker, manager of a large medical supply house that operates 50 weeks per year and 5 days per week, has decided to implement a fixed-period inventory system for all class A items. One such item has the following characteristics: Demand =10,000 units / year Order cost =\ 50/ order Holding cost =\ 5/ unit / year If Cynthia wishes to minimize the total cost (thereby approximating the economic order quantity (EOQ)), what should be the value of T, the number of workdays between orders (i.e., review period)?

Stochastic demand inventory models are easier to analyze and solve than deterministic models.

Deterministic demand always remains stable over time and does not fluctuate.

Marketing and operations generally prefer high inventory levels, while finance would prefer small inventories.

Zainab 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 with respect to this pump's sales: Demand =5 units per week Store operates 50 weeks / year Order cost =\ 40/ order Lead time =3 weeks Item cost =\ 80/ pump Inventory-holding cost =15\% per year -The economic order quantity (EOQ) rounded to the next highest number is:

Keith, an operations manager at a chemical company is attempting to set a safety stock level for a key ingredient that is used in their most powerful insecticide product. He believes that demand during lead time for this ingredient is normally distributed based on past data. In addition, he believes that future use is accurately depicted by these historical demands during lead-time data (in gallons): 55, 75, 75, 70, 80, 60, 50, 70, 60, and 85. He estimates the standard deviation of demand during the lead time to be 8.5 gallons. a.What is the average demand during the lead time for this key ingredient? b.What is the safety stock needed to provide a 95 percent service level? c.What is the reorder point the company should use?

Larger orders result in higher total holding cost but lower total ordering cost.

Define the economic order quantity (EOQ) model and explain its major assumptions.

Which of the following statements is TRUE?

Which of the following is NOT a component of holding cost?

Delta Manufacturing is implementing an economic order quantity (EOQ) inventory control system and needs a good estimate of the cost to process a purchase order (PO). It takes 6 total labor hours to process a PO. The average number of SKUs on a PO is 4.2. The average wage for people working in the purchasing department is $20 per hour, plus employee benefits of $4 per hour. Fixed costs for the purchasing department are $350,000 per year assuming a 2,000 hour per employee per year workweek. Given this information, what is a good estimate of the cost to process one stock-keeping unit (SKU)?

In general, total ordering costs are equal to total inventory-holding cost for the optimal solution to the economic order quantity (EOQ) model.

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 total order and inventory-holding cost is: