Exam 18: Inventory Management

Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and carrying costs are 4 cents per pound per day. Lead time for each order is three days, and the pepperoni itself costs $3.00 per pound. If she were to order 80 pounds of pepperoni at a time, what would be the average total daily costs, including the cost of the pepperoni?

The manager of the Quick Stop Corner Convenience Store (which never closes) sells four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer costs $.80 per six-pack (each case of Stein beer contains four six-packs). Orders arrive three days from the time they are placed. Daily holding costs are equal to 5 percent of the cost of the beer. If he were to order 16 cases of Stein beer at a time, what would be the average inventory level?

The EOQ should be regarded as an approximate quantity rather than an exact quantity. Thus, rounding the calculated value is acceptable.

A stock or store of goods is called a(n):

Average demand for a particular item is 1,200 units per year. It costs $100 to place an order for this item, and it costs $24 to hold one unit of this item in inventory for one year. If the fixed-order-interval model is chosen in this instance, how often (on average) will this item be ordered?

An operations strategy which recognizes high carrying costs and reduces ordering costs will result in:

The single-period model can be very helpful in determining when to order.

The materials manager for a billiard ball maker must periodically place orders for resin, one of the raw materials used in producing billiard balls. She knows that manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04 per day to carry a kilogram of resin in inventory. She also knows that the order costs for resin are $100 per order, and that the lead time for delivery is four days. What is the economic order quantity for resin?

Which of the following interactions with vendors would potentially lead to inventory reductions?

If average demand for an inventory item is 200 units per day, lead time is three days, and safety stock is 100 units, the reorder point is:

In the single-period model, the service level is the probability that demand will not exceed the stocking level in any period.

The average inventory level and the number of orders per year are inversely related: As one increases, the other decreases.

The Operations Manager for Shadyside Savings & Loan orders cash from her home office for her very popular "BIG BUCKS" automated teller machine, which only dispenses $100 bills. She estimates that this machine dispenses an average of 12,500 bills per month, and that carrying a bill in inventory costs 10 percent of its value annually. She knows that each order for these bills costs $300 for clerical and armored car delivery costs, and that order lead time is six days. Assuming a 30-day month, at what point should bills be reordered?

In the EOQ formula, holding costs under 10 percent are expressed as percentages, above 10 percent are expressed as annual unit costs.

The two basic issues in inventory are how much to order and when to order.

The purpose of cycle counting is to:

Discrete stocking levels are used when an organization does not want visibility of inventory levels.

The Operations Manager for Shadyside Savings & Loan orders cash from her home office for her very popular "BIG BUCKS" automated teller machine, which only dispenses $100 bills. She estimates that this machine dispenses an average of 12,500 bills per month, and that carrying a bill in inventory costs 10 percent of its value annually. She knows that each order for these bills costs $300 for clerical and armored car delivery costs, and that order lead time is six days. Assuming a 30-day month, what is the economic order quantity?

Solving quality problems can lead to lower inventory levels.

The materials manager for a billiard ball maker must periodically place orders for resin, one of the raw materials used in producing billiard balls. She knows that manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04 per day to carry a kilogram of resin in inventory. She also knows that the order costs for resin are $100 per order, and that the lead time for delivery is four days. If the order size was 1,000 kilograms of resin, what would be the average inventory level?