Exam 20: Inventory Management

Economic Order Quantity, timing of orders and safety stock are three important considerations in inventory management. Required: A. Explain each of these considerations. B. How is EOQ affected by the timing of orders and safety stock?

Burgoon uses an economic order quantity model and has determined an optimal order size of 500 units. Annual demand is 10,000 units, ordering costs are $50 per order, and holding costs are $4 per unit. The company's annual ordering and holding costs total:

Which of the following does not minimize ordering costs when using JIT purchasing?

Shields carries a part that is popular in the manufacture of automatic sprayers. Demand for this part is 4,000 units per year; order costs amount to $30 per order, and holding costs total $1.50 per unit. The company is considering the implementation of an economic order quantity model in an effort to better manage its inventories. Required: A. Compute the economic order quantity. B. Compute total annual inventory costs if Shields follows the EOQ policy.

At the economic order quantity:

Cartwright Graphics uses a special purpose paper on 80% of its jobs. The paper is purchased in 100-sheet packages at a cost of $100 per package. Management estimates that the cost of placing and receiving a typical order is $15, and the annual cost of carrying a package in inventory is $1.50. Cartwright uses 2,600 packages each year. Production is constant, and the lead time to receive an order is 1 week. The economic order quantity is approximately:

Cartwright Graphics uses a special purpose paper on 80% of its jobs. The paper is purchased in 100-sheet packages at a cost of $100 per package. Management estimates that the cost of placing and receiving a typical order is $15, and the annual cost of carrying a package in inventory is $1.50. Cartwright uses 2,600 packages each year. Production is constant, and the lead time to receive an order is 1 week. The reorder point is:

Which of the following is classified as an inventory shortage cost?

When comparing EOQ and JIT inventory systems, which of the following statements is false?

When considering safety stock and its effect on EOQ, which of the following statements is false?

Shields carries a part that is popular in the manufacture of automatic sprayers. Demand for this part is 4,000 units per year; order costs amount to $30 per order, and holding costs total $1.50 per unit. The company, which currently places four orders per year with its suppliers, is considering the implementation of an economic order quantity (EOQ) model to better manage its inventories. Preliminary EOQ calculations revealed an optimal order quantity of 400 units and total annual inventory costs of $600. Required: A. In comparison with its current policy, how much will Shields save by adopting the EOQ model? B. Briefly explain the philosophical difference between the EOQ model and the just-in-time model. Which of the two models will likely result in lower holding costs for the firm? Why?

When graphing the EOQ, which of the following statements is false?

Inventory holding costs typically include:

Inventory holding costs would typically include all of the following except: