Exam 12: Managing Inventories

Which one of the following statements concerning the economic order quantity (EOQ) model is not true when the unit holding cost increases?

Airline seats and call center phone lines are examples of inventory in service organizations.

Overnight shipping for emergency orders and compensation for overbooking at a hotel are examples of ordering costs.

For the single-period inventory model, solving for the optimal order quantity involves using

Given the information below, conduct an ABC analysis and suggest which items should be classified as A, B and C. $\begin{array} { c c c } \text { SKU } & \text { Annual Usage } & \text { Item Value \$) } \\\hline1& 9,000 & 80.00 \\2 & 12,000 & 58.80 \\3 & 24,000 & 76.20 \\4 & 42,000 & 48.00 \\5 & 55,000 & 30.00 \\6 & 140,000 & 2.20 \\7 & 33,000 & 48.00 \\8 & 3,000 & 110.00\end{array}$

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

A merchant wants to stock Christmas trees. She can place only one order per season. The merchant pays $30 for each tree and sells them for $80 each. She will incur an additional cost of $6 each for unsold trees that must be hauled to the landfill. If demand for Christmas trees is normally distributed with a mean of 365 trees and a standard deviation of 46 trees, how many trees should she order?

Which one of the following statements is true?

Safety stock inventory is an additional amount of inventory kept over and above the average amount required to meet demand during the lead time.

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 Holding cost = $2/unit/year Lead time = 3 weeks Standard deviation in weekly demand = 125 units a. What is the EOQ for this item? b. If Peterson wishes to provide a 90 percent cycle-service level, what is the reorder point with safety stock?

Which of the following is not a key assumption underlining the classic economic order quantity (EOQ) model?

Provide some examples of when the single period inventory model is applicable.

Which of the following is not a key input to a single period inventory model?

Additional inventory kept over and above the average amount required to meet demand is called ____ inventory.

Airline flights to ski areas near Denver, Colorado, probably have different means and variances throughout the year. This is an example of dynamic demand.

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 Baker wishes to minimize total cost thereby approximating the EOQ), what should be T, the number of workdays between orders i.e., review period)?

A 4th of July celebration T-shirt for this year will cost festival organizers $12 each and will sell for $25 before and on July 4th. Any unsold T-shirts can usually be disposed of at a discount after the festival for $5 each. If demand is normally distributed with a mean of 1,800 T-shirts and a standard deviation of 75, how many T-shirts should be ordered?

Summarize the characteristics of the inventory environment that management considers when developing an inventory management system.

The Economic Order Quantity model EOQ) allows for variable lead-time.

Which is not an advantage of the periodic review system?