Exam 5: Inventory Management

What are the components of holding cost?

A(n)________ is an item that is made to stock and normally is available when needed.

________ is an inventory control method whereby storeroom personnel physically count a small percentage of the total number of items each day,correcting errors that they find.

Table 5.3 The Medfield Import Autoparts Company imports and sells standard air filters for most Japanese cars, and it operates under the continuous review system. The average demand for this item is 1200 units per month (14,400 per year), and the standard deviation in monthly demand is 250 units. It costs the company $225 to process each order, and the lead time is 2 months. The holding cost for one unit is $0.50 per year, and the company policy is to maintain a 95 percent cycle-service level. You will need to refer to a normal table to answer the question(s). -Use the information in Table 5.3.What is the EOQ (economic order quantity)for this air filter?

A neighborhood sportswear store sells a pair of Nike sneakers for $40.Due to the recent fitness craze,these shoes are in high demand: 50 pairs of shoes are sold per week.The ordering cost is $20/order,and the annual holding cost is 20 percent of selling price.If the store operates 52 weeks a year,what can you say about the current lot size of 235?

The ________ is the average elapsed time between receiving replenishment orders of Q units for a particular lot size.

________ is the number of orders filled completely relative to the total number of orders.

Table 5.1 Fred Jacobs, assistant manager of Home and Hearth, is reviewing the costs associated with the store's best-selling frying pan. The data available to Mr. Jacobs concerning this frying pan follow. Demand =20 units/week Order cost =\ 75/ order Holding cost =\ 15/ unit/year Home and Hearth operates 50 weeks per year. -Use the information in Table 5.1 The current order quantity is 125 units per order.What is the total annual ordering cost and holding cost for this order size?

Shutting down more frequently but for shorter periods of time for preventive maintenance will generally reduce the quantity of decoupling inventory needed.

A backorder is an order that cannot be filled at the time the customer places the order,resulting in a lost sale.

As counter arguments to pressures to lower inventories,identify and briefly describe the pressures for maintaining higher levels of inventory.

Identify and briefly describe the five principal functions of inventory.

The item fill rate measures how quickly orders arrive from suppliers.

ABC analysis is the process of dividing items into three classes according to their dollar usage.

Which one of the following statements concerning the economic order quantity (EOQ)is TRUE?

Table 5.7 Demand $= 5200$ units/year Standard deviation of weekly demand $= 11$ units Ordering costs $= \$ 45 /$ order Holding costs $= \$ 2 /$ unit/year Cycle-service level $= 90 \%$ ( z for $90 \% = 1.28$ ) Lead time $= 3$ weeks Number of weeks per year $= 52$ weeks -Use the information in Table 5.7.The firm decided to change to the periodic review system to control the item's inventory.For the most recent review,an inventory clerk checked the inventory of this item and found 500 units.There were no scheduled receipts at the time.How many units should be ordered? (HINT: Use the EOQ model to derive P,the time between reviews.)

In a periodic review (P)inventory system,the lot size ordered may change from one order to the next but the time between orders is fixed.

A continuous review system is sometimes called a reorder point system.

For a given level of annual demand (D),as the lot size Q decreases,both inventory holding costs and ordering or setup costs decrease.

Inventory ________ cost is the variable cost of keeping items on hand,including interest,storage and handling,taxes,insurance,and shrinkage.