Exam 6: Inventory Control Models

For the single-period model, if marginal loss increases relative to marginal profit, then the optimal order quantity will increase.

Andre Candess manages an office supply store.One product in the store is computer paper.Andre knows that 10,000 boxes will be sold this year at a constant rate throughout the year.There are 250 working days per year and the lead-time is 3 days.The cost of placing an order is $30, while the holding cost is $15 per box per year.If he orders in batches of 500 boxes at a time, what is his annual holding cost?

The demand during the lead-time is normally distributed with a mean of 40 and a standard deviation of 4.If the company wishes to maintain a 90 percent service level, how much safety stock should be held?

A stockout is a situation that occurs when there is no inventory on hand.

Vicky Payne sells beauty supplies.Her annual demand for a particular skin lotion is 7,000 units.The cost of placing an order is $10, while the holding cost per unit per year is 10 percent of the cost.This item currently costs $2.50 if the order quantity is less than 1500.For orders of 1501 units or more, the cost falls to $2.45.To minimize total cost, how many units should Vicky order each time she places an order? What is the minimum total cost?

In ABC inventory analysis, items in the "A" group should have the lowest dollar value to the firm.

Which of the following is part of the determination of EOQ?

The annual demand for a product has been projected at 2,000 units.This demand is assumed to be constant throughout the year.The ordering cost is $20 per order, and the holding cost is 20 percent of the purchase cost.Currently, the purchase cost is $40 per unit.There are 250 working days per year.Whenever an order is placed, it is known that the entire order will arrive on a truck in 6 days.How many units should the company order each time an order is placed if the company wishes to minimize total inventory cost?

An organization hosting a 5K race is looking to sell t-shirts at the event.Demand for t-shirts is believed to be normally distributed with a mean of 100 and standard deviation of 15.With a marginal loss of $4 and marginal profit of $5, how many t-shirts should the organization stock for the 5K race?

List major ordering cost factors.

Explain how inventory can act as a buffer in the production process.

A company annually uses 1,200 of a certain spare part that costs $25 for each order and has a $24 annual holding cost.Calculate the total annual cost for order sizes of: 25, 40, 50, 60, and 100.Identify the economic order quantity, and consider the implications for making an error in calculating the economic order quantity.

The campus bookstore knows from the past several semesters that a certain elementary statistics book has a demand that is approximated by a normal distribution with a mean of 250 and a standard deviation of 40.They buy these books for $105 each and sell them to unsuspecting undergraduates at $222 each.All demand for this book is realized by the middle of the semester, at which point the bookstore bundles them up and sells them to a vendor in another country for $40 each.What is the marginal loss for a single elementary statistics book?

A person is using the normal distribution to determine the safety stock for a product.The Z value of 1.65 would be associated with what service level?

At a minimum, one container is required using the Kanban system.

A company uses 1,500 per year of a certain subassembly that has an annual holding cost of $45 per unit.Each order placed costs $150.The company operates 300 days per year and it has found that an order must be placed with the supplier 6 working days before it can expect to receive that order.For this subassembly, find: (a)the economic order quantity. (b)the annual holding cost. (c)the annual ordering cost. (d)the reorder point.

Consider the material structure tree for item A above.If 20 units of A are needed, how many units of D are needed if there are already 10 B's and 10 C's in inventory?

As the service level increases

The costs involved in a typical inventory model are order costs, management costs, and holding costs.

Rolf Steps is the production manager for a local manufacturing firm.This company produces staplers and other items.The annual demand for a particular stapler is 1,600 units.The holding cost is $2 per unit per year.The cost of setting up the production line is $25.There are 200 working days per year.The production rate for this product is 80 per day.If Rolf decided to produce 200 units each time he started production of the stapler, what would his maximum inventory level be?