Deck 16: Inventory Management

Question 1

In a periodic inventory system, a constant amount is ordered when inventory declines to a predetermined level.

Answer 1

False

Question 2

Carrying costs include storage cost, interest, and depreciation.

Answer 2

True

Question 3

The basic EOQ model plays no role in determining order sizes in the presence of quantity discounts.

Answer 3

False

Question 4

The reorder point is the date when a new order should be placed.

Question 5

The EOQ model with shortages does not allow backorders.

Question 6

Assumptions of the basic EOQ model include constant demand, no shortages, constant lead time, and instantaneous replenishment.

Question 7

In a continuous inventory system, a constant amount is ordered when inventory declines to a predetermined level.

Question 8

Dependent demand items are final products demanded by an external customer.

Question 9

If service level is 50%, then safety stock is equal to 50% of lead time demand.

Question 10

Inventory costs include carrying, ordering, and shortage costs.

Question 11

The noninstantaneous receipt model applies only to manufacturing.

Question 12

If all of the assumptions for the basic EOQ model are met, the fixed-period model will behave exactly like the EOQ model.

Question 13

Periodic inventory systems normally require smaller safety stock than a continuous inventory system.

Question 14

The service level is the probability that the inventory available during lead time will meet demand.

Question 15

If lead time and demand are constant, safety stock is equal to demand multiplied by lead time.

Question 16

Quantity discounts are always evaluated with carrying cost as a percentage of price.

Question 17

A periodic inventory system has constant order sizes and order intervals.

Question 18

The purpose of inventory management is to determine how much and when to order.

Question 19

The EOQ is the optimal order quantity that will minimize total carrying costs.

Question 20

Independent demand items are used internally to produce a final product.

Question 21

In a ________ inventory system, an order is placed for a variable amount after a fixed passage of time.

Question 22

In the basic EOQ model, the amount ordered is received in ________ shipment(s).

Question 23

Costs involved in a typical inventory model include ________ and ________.

Question 24

In a ________ inventory system, a constant amount is ordered when inventory declines to a predetermined level.

Question 25

The purpose of inventory management is to determine ________ and ________ to order.

Question 26

A ________ occurs when an item is out of stock and is sold to the customer when a shipment arrives.

Question 27

The objective of the basic EOQ model is to ________.

Question 28

Inventory ________ costs include transportation and inspection.

Question 29

The lower the service level, the greater the probability of a stockout.

Question 30

Inventory ________ costs include storage cost and the cost of capital.

Question 31

________ demand items are generally final products demanded by customers.

Question 32

If a business frequently runs out of inventory, their service levels are negative.

Question 33

Ordering costs include transportation, shipping, and inspection.

Question 34

The service level is the probability that the inventory available during the lead time will meet the demand.

Question 35

Service level is positively correlated with the size of the buffer stock.

Question 36

A ________ occurs when customer demand cannot be met and the sale is lost because of insufficient inventory.

Question 37

Shortage costs include loss of customer goodwill.

Question 38

In the basic EOQ model, as the size of the order increases, the annual ________ cost decreases.

Question 39

________ is the optimal order quantity that will minimize the total inventory costs.

Question 40

________ demand items are used internally to produce a final product.

Question 41

A company produces item Y, and uses the basic EOQ model for managing its inventory. Lead time to obtain item Y is two weeks. Demand is normally distributed with a mean of 400 units per week and a standard deviation of 40 units per week. The desired service level is 98.5%. The ordering cost is $20, and carrying cost is 20% of the items cost, which is $10.
Determine the order quantity for product Y. (Assume 52 weeks of operation per year.)

Question 42

A company produces item Y, and uses the basic EOQ model for managing its inventory. Lead time to obtain item Y is two weeks. Demand is normally distributed with a mean of 400 units per week and a standard deviation of 40 units per week. The desired service level is 98.5%. The ordering cost is $20, and carrying cost is 20% of the items cost, which is $10.
Determine the annual setup cost and the annual carrying cost for product Y for the economic order quantity. (Assume 52 weeks of operation per year.)

Question 43

________ costs and ________ costs react inversely to each other in response to an increase in order size.

Question 44

________ is the probability that the inventory available during the lead time will meet demand.

Question 45

The reorder point will ________ if lead time increases and demand per day remains the same.

Question 46

The ________ determines when an order should be placed for a continuous review inventory system.

Question 47

If all the variables are held constant, the total inventory cost in a noninstantaneous receipts model is ________ than the total cost in the basic EOQ model.

Question 48

In the basic EOQ model, if annual demand is 50 units, carrying cost is $2 per unit per year, and ordering cost is $15, what is the EOQ?

Question 49

The EOQ model is ________ , or resistant to errors in the cost estimates and demand.

Question 50

If demand per day or lead time are not constant, then the reorder point must include a level of inventory called ________.

Question 51

In the quantity discounts model, the ________ must be included in the total cost calculation. This variable is not included in the basic EOQ model.

Question 52

In the basic EOQ model, if D=40 per month, C_o=$9, and C_c=$8 per unit per month, what is the EOQ?

Question 53

When viewing a plot of inventory level against time, the distance on the time axis from when an order has been placed to when it is received is ________.

Question 54

In the basic EOQ model, if D=100 per month, C_o=$20, and C_c=$15 per unit per month, what is the EOQ?

Question 55

The basic EOQ model assumes that ________ is known with certainty and is relatively constant over time.

Question 56

________ is inventory that is used to help protect against stockouts.

Question 57

In the basic EOQ model, as the size of the order increases, the annual ________ cost increases.

Question 58

In the basic EOQ model, if D=80 per month, C_o=$13, and C_c=$11 per unit per month, what is the EOQ?

Question 59

If lead time and demand are constant then ________ is zero.

Question 60

For the ________ inventory system, Q, the quantity ordered, can vary.

Question 61

Kushie's Coffee in Bangalore is a quaint establishment nestled near MG Road in the central business district. It serves coffee and fruit cake to a clientele that has been enjoying these products for over fifty years. The demand for coffee beans is 6600 cases per year (each case has 24 ten-pound bags). It would be disastrous for them to run out of coffee, so they keep a safety stock of 30 cases. The cases cost $4800 and it costs $5 per case to order coffee. As coffee is a perishable product, the holding cost is fairly high at $40/case/year. The lead time to receive an order is seven days. Kushie's is open 300 days a year.
What is the reorder point for Kushie's if they reorder a quantity twice as high as their EOQ?

Question 62

The daily sales of a peanut butter at Power's Grocery are normally distributed, with a mean of 12 jars and a standard deviation of 4. The manager checks the inventories on shelves and places an order every three days. Delivery lead time is two days.

-In a noninstantaneous receipt model, daily demand is 55 units and daily production is 120 units, C_o=$70 and C_c=$4 per unit/year. The production facility operates 300 days per year. What is the maximum inventory level?

Question 63

Kushie's Coffee in Bangalore is a quaint establishment nestled near MG Road in the central business district. It serves coffee and fruit cake to a clientele that has been enjoying these products for over fifty years. The demand for coffee beans is 6600 cases per year (each case has 24 ten-pound bags). It would be disastrous for them to run out of coffee, so they keep a safety stock of 30 cases. The cases cost $4800 and it costs $5 per case to order coffee. As coffee is a perishable product, the holding cost is fairly high at $40/case/year. The lead time to receive an order is seven days. Kushie's is open 300 days a year.
What is the optimal order quantity for Kushie's Coffee?

Question 64

The injection molding department of Alver Inc. uses an average of 40 pounds of a special powder per day. The plant operates 250 days per year. The daily usage of the powder is normally distributed with a standard deviation of 5 pounds per day. The lead time to obtain the powder from a supplier is 9 days. The annual holding cost is $2 per unit and the cost of ordering the powder is $50.
Determine the reorder point for a service level of 97%.

Question 65

The daily sales of a peanut butter at Power's Grocery are normally distributed, with a mean of 12 jars and a standard deviation of 4. The manager checks the inventories on shelves and places an order every three days. Delivery lead time is two days.

-In a noninstantaneous receipt model, daily demand is 55 units and daily production is 120 units, C_o=$70 and C_c=$4 per unit/year. The production facility operates 300 days per year. What is the optimal order quantity?

Question 66

Given an EOQ model with shortages in which annual demand is 4200 units, C_o=$160, C_c=$7 per unit per year and C_s=$25, what is the optimal order quantity?

Question 67

Given an EOQ model with shortages in which annual demand is 4200 units, C_o=$160, C_c=$7 per unit per year and C_s=$25, what is the total annual shortage cost?

Question 68

Kushie's Coffee in Bangalore is a quaint establishment nestled near MG Road in the central business district. It serves coffee and fruit cake to a clientele that has been enjoying these products for over fifty years. The demand for coffee beans is 6600 cases per year (each case has 24 ten-pound bags). It would be disastrous for them to run out of coffee, so they keep a safety stock of 30 cases. The cases cost $4800 and it costs $5 per case to order coffee. As coffee is a perishable product, the holding cost is fairly high at $40/case/year. The lead time to receive an order is seven days. Kushie's is open 300 days a year.
What is their cost for holding all types of inventory if they order optimally?

Question 69

Kushie's Coffee in Bangalore is a quaint establishment nestled near MG Road in the central business district. It serves coffee and fruit cake to a clientele that has been enjoying these products for over fifty years. The demand for coffee beans is 6600 cases per year (each case has 24 ten-pound bags). It would be disastrous for them to run out of coffee, so they keep a safety stock of 30 cases. The cases cost $4800 and it costs $5 per case to order coffee. As coffee is a perishable product, the holding cost is fairly high at $40/case/year. The lead time to receive an order is seven days. Kushie's is open 300 days a year.
What is their total policy cost (including cost of goods) if they order at the EOQ amount?

Question 70

The daily demand for a product is normally distributed with a mean of 80 and a standard deviation of 8. Constant lead time is 4 days. The cost of placing an order is $20. The item costs $8 and the carrying rate per year is 10% of the item cost. Determine the economic order quantity for a 365-day year.

Question 71

A product has an annual demand of 3600 units. Unit cost for this product is $3. Set up cost is $20 and the inventory carrying rate as a percent of the unit cost is 25%. The product is produced in-house where the daily production rate is 50 units. Assume 360 working days per year and determine the economic production quantity.

Question 72

A company produces item Y, and uses the basic EOQ model for managing its inventory. Lead time to obtain item Y is two weeks. Demand is normally distributed with a mean of 400 units per week and a standard deviation of 40 units per week. The desired service level is 98.5%. The ordering cost is $20, and carrying cost is 20% of the items cost, which is $10.
Determine the reorder point for product Y.

Question 73

Given an EOQ model with shortages in which annual demand is 4200 units, C_o=$160, C_c=$7 per unit per year and C_s=$25, what is the annual ordering cost?

Question 74

The daily sales of a peanut butter at Power's Grocery are normally distributed, with a mean of 12 jars and a standard deviation of 4. The manager checks the inventories on shelves and places an order every three days. Delivery lead time is two days.
If there are four jars on the shelf when an order is placed, how much should the store order?

Question 75

A company produces item Y, and uses the basic EOQ model for managing its inventory. Lead time to obtain item Y is two weeks. Demand is normally distributed with a mean of 400 units per week and a standard deviation of 40 units per week. The desired service level is 98.5%. The ordering cost is $20, and carrying cost is 20% of the items cost, which is $10.
Determine the total annual inventory cost for product Y. Include the item cost in your calculations. (Assume 52 weeks of operation per year.)

Question 76

The injection molding department of Alver Inc. uses an average of 40 pounds of a special powder per day. The plant operates 250 days per year. The daily usage of the powder is normally distributed with a standard deviation of 5 pounds per day. The lead time to obtain the powder from a supplier is 9 days. The annual holding cost is $2 per unit and the cost of ordering the powder is $50.
How many orders will be placed each year?

Question 77

A product has an annual demand of 3600 units. Unit cost for this product is $3. Set up cost is $20 and the inventory carrying rate as a percent of the unit cost is 25%. The product is produced in-house where the daily production rate is 50 units. Assume 360 working days per year. Determine the annual ordering cost and carrying cost if the optimal production quantity is made each time.

Question 78

The injection molding department of Alver Inc. uses an average of 40 pounds of a special powder per day. The plant operates 250 days per year. The daily usage of the powder is normally distributed with a standard deviation of 5 pounds per day. The lead time to obtain the powder from a supplier is 9 days. The annual holding cost is $2 per unit and the cost of ordering the powder is $50.
How many units should Alver Inc. order in order to minimize annual ordering and carrying cost?

Question 79

The daily sales of a peanut butter at Power's Grocery are normally distributed, with a mean of 12 jars and a standard deviation of 4. The manager checks the inventories on shelves and places an order every three days. Delivery lead time is two days.
How much safety stock of peanut butter should they have for a 99% service level?

Question 80

Kushie's Coffee in Bangalore is a quaint establishment nestled near MG Road in the central business district. It serves coffee and fruit cake to a clientele that has been enjoying these products for over fifty years. The demand for coffee beans is 6600 cases per year (each case has 24 ten-pound bags). It would be disastrous for them to run out of coffee, so they keep a safety stock of 30 cases. The cases cost $4800 and it costs $5 per case to order coffee. As coffee is a perishable product, the holding cost is fairly high at $40/case/year. The lead time to receive an order is seven days. Kushie's is open 300 days a year.
How many orders per year does Kushie's place if they order a cost minimizing quantity?