Deck 10: Order Quantities

Question 1

Using the POQ method of ordering, calculate the total cost of carrying and ordering inventory for the 6 week period shown. Use a POQ = 3 weeks for your answer.
$$\begin{array} { l c c c c c c } \text { Week } & 1 & 2 & 3 & 4 & 5 & 6 \\\text { Net requirements } & 60 & 40 & 10 & 50 & 20 & 30 \\\text { Planned order receipts } & & & & & & \\\text { Ending inventory } & & & & & &\end{array}$$
Cost to place an order = $100.00
Cost to carry inventory = $1.00 per unit per week
Annual demand = 1,500 units
Cost per unit = $200.00
Opening inventory = 0 units

A) $140
B) $280
C) $340
D) $400
E) none of the above

Answer 1

$340

Question 2

Which of the following are NOT assumptions on which the economic order quantity (EOQ) is based?

A) demand is relatively constant and known
B) the item is produced continuously
C) order preparation costs, inventory carrying costs and lead times are constant and known
D) replacement occurs all at once
E) all of the above are true assumptions

Answer 2

B

Question 3

If the economic order quantity is to be calculated in DOLLARS, then:

A) the annual demand must be stated in dollars
B) ordering costs MUST be stated on a per UNIT basis
C) carrying costs are stated in dollars per unit
D) all the above are true
E) none of the above is true

Answer 3

A

Question 4

In developing the standard economic order quantity formula the following assumption(s) is (are)
Made:

A) demand for the item is relatively uniform
B) replenishment is in lots or batches that arrive at once
C) lead time is constant
D) all of the above are assumed
E) none of the above is assumed

Question 5

Quantity discounts cause companies to:

A) Order sooner.
B) Order less at a time.
C) Increase their inventory.
D) Increase ordering costs.
E) Always save money

Question 6

Which of the following statements is correct?

A) you must know the ordering cost to use the EOQ concept
B) quantity discounts will not change the total inventory costs of the item
C) inventory levels can be lowered by raising the order quantity
D) if stock is not received all at once into inventory then EOQ formula can be modified and used
E) none of the above is correct

Question 7

Which of the following statements is best?
I) The EOQ should be used with lumpy demand.
II) Transportation cost should be included in the cost of ordering.
III) Anticipation inventory should be built based on capacity and future demand.

A) I and II only are true
B) I and III only are true
C) II and III only are true
D) all the above are true
E) none of the above are true

Question 8

Which of the following is NOT true regarding period order quantity method (POQ) of lot sizing?

A) The order quantity is constant.
B) The time interval of inventory coverage is constant.
C) POQ is derived directly from the EOQ.
D) POQ is better suited to lumpy demand than EOQ.
E) POQ and EOQ will try to order the same number of times per year.

Question 9

Assuming the cost per order is constant, increasing the order quantity will cause annual ordering costs to:

A) decrease
B) increase
C) remain the same
D) increase at a decreasing rate
E) cannot be determined

Question 10

In determining the economic order quantity (EOQ) the following costs are considered:

A) costs of a stockout and ordering costs
B) costs of a stockout and inventory holding costs
C) ordering costs and inventory carrying costs
D) ordering costs and costs of changing production levels
E) inventory holding costs and costs of changing production levels

Question 11

For a certain group of items the cost of carrying inventory and the cost of placing orders is not exactly known but is about the same for all the items. The company has calculated K = 20 for these items. If one item has an annual demand (A) = $10,000 the NEW order quantity should be:

A) $2,000
B) $10,000
C) $20,000
D) $50,000
E) none of the above

Question 12

If a purchase discount is taken:
1) There is a saving in purchase cost.
2) Ordering costs are reduced.
3) Carrying costs are increased.
4) There is not necessarily a net saving.

A) all the above are true
B) 2 and 3 are true
C) 3 and 4 are true
D) 2 and 4 are true
E) 3 and 4 are true

Question 13

For a particular item the usage is 2000 units per year, the ordering cost is $10, the inventory carrying cost is 20% and the unit cost is $5. The economic order quantity is:

A) 20 units
B) 200 units
C) 2000 units
D) 400 units
E) 4000 units

Question 14

A supplier offers a quantity discount. Which of the following will influence the decision to accept the discount or not?

A) purchase cost
B) cost of carrying inventory
C) cost of placing one order
D) all of the above are relevant
E) none of the above is relevant

Question 15

The period order quantity is equal to:

A) Annual demand divided by EOQ.
B) EOQ divided by average period demand.
C) The carrying cost up to but not exceeding the ordering cost.
D) The sum of the carrying costs divided by cost per unit.
E) The part period cost times average inventory.

Question 16

A firm uses $20,000 of an item per year. The carrying cost is 25%, the cost of ordering is $10 and the order quantity is $1,000. The annual total cost of carrying plus ordering would be:

A) $2,500
B) $5,000
C) $500
D) $816
E) none of the above

Question 17

In the simple EOQ model annual inventory carrying costs and annual ordering costs vary:

A) according to the time of year
B) with seasonally adjusted demand
C) with the order quantity
D) do not vary in any way
E) in an unknown manner

Question 18

While working a simple EOQ problem, you notice that, with a certain lot size, the annual ordering cost is exactly the same value as the annual inventory carrying cost. Which of the following is true?

A) the lot size is the economic order quantity
B) total cost is at its maximum
C) the annual carrying cost will decrease if the order quantity is increased
D) all of the above
E) none of the above; the phenomenon is merely a coincidence

Question 19

The EOQ for an item is 5500 units and the annual demand is 78,000 units. What is the period order quantity?

A) 14.18
B) 0.27
C) 3.67
D) 4
E) cannot be determined from the given data

Question 20

If the order quantity is increased the annual cost of carrying inventory will:

A) increase
B) decrease
C) remain the same
D) not be affected
E) none of the above

Question 21

Quantity discounts:

A) Make buyers order more than is economical.
B) Decrease the annual carrying costs but increase the ordering cos.
C) Can be a good decision if the total annual costs are reduced.
D) Always advantage the seller at a cost to the buyer.
E) Persuade the buyer to buy more often.

Question 22

The letter 'K' used in lot sizing makes the order quantities.

A) Order the big items more often and the low volume items less often.
B) Increase the average inventory.
C) Decrease the average inventory by gradually ordering more often.
D) Maintains the current inventory level while decreasing the number of orders.
E) Balances the safety stock of items with demand.

Question 23

Which of the following techniques balances the cost of ordering with the cost of carrying inventory?

A) EOQ
B) POQ
C) The constant K
D) All of the above

Question 24

K the constant used for lot sizing is calculated as the:

A) Order point minus safety stock.
B) Sum of the square roots of demand divided by the number of orders per year.
C) Standard deviation of the demand divided by the square root of demand.
D) Annual demand divided by the order quantity.
E) The reciprocal of order quantity times the economic order quantity.

Question 25

The period order quantity:

A) Can only be applied to continuous demand.
B) Orders a constant amount for a set number of periods.
C) Works like a quantity discount.
D) Is based on the same assumptions as the EOQ model.
E) Orders the same quantity each period.