Exam 13: Inventory Management

The rate of demand is an important factor in determining the ROP.

Which of the following is typically the largest of all inventory costs?

Given the following data for a particular inventory item: Usage 500 units/week Ordering \ 40 per order Carrying Cost \ .01 per unit per week Lead Time 3 weeks Price \ .50 per unit For the economic order quantity, what is the reorder point?

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 length of an order cycle?

The Corner Newsstand has demand for a certain weekly magazine that can be approximated by a Poisson distribution with a mean of 9.0. Magazines are purchased for $1.50. If unsold copies can be returned for half credit and the owner stocks 10 copies, what is the implied range of shortage cost?

Given the following data for a particular inventory item: Usage 500 units/week Ordering \ 40 per order Carrying Cost \ .01 per unit per week Lead Time 3 weeks Price \ .50 per unit What is the economic order quantity for this item?

Joe's Coffee Shoppe has fresh doughnuts delivered each morning. Daily demand for plain doughnuts is approximately normal, with a mean of 200 and a standard deviation of 15. Joe pays $1.20 per dozen and has a standing order for 16 dozen. Joe and the staff eat any leftovers. What is the implied shortage cost?

The EOQ model is most relevant for which one of the following?

Daily usage is exactly 60 gallons per day. Lead time is normally distributed with a mean of 10 days and a standard deviation of 2 days. What is the standard deviation of demand during lead time?

Interest, insurance, and opportunity costs are all associated with holding costs.

Which one of the following is implied by a lead time service level of 95 percent?

A restaurant prepares Peking duck daily at a cost of $18 per duck. Each duck generates revenue of $47 if sold. Demand for Peking duck can be described by a Poisson distribution with a mean of 4.2 ducks per day. Unsold ducks at the end of each day are converted to duck soup at an additional cost of $5 over and above the resulting value as soup. How many ducks should be prepared each day?

In a single-period model, if shortage and excess costs are equal, then the optimum service level is:

A company can produce a part it uses in an assembly operation at the rate of 50 an hour. The company operates eight hours a day, 300 days a year. Daily usage of the part is 300 parts. The company uses the part every day. The run size is 6,000 parts. The annual holding cost is $2 per unit, and setup cost is $100. (A) How many runs per year will there be? (B) While production is occurring, how many parts per day are being added to inventory? (C) Assuming that production begins when there are no parts on hand, what is the maximum number of parts in inventory? (D) The machine is dedicated to this product. Every so often, preventive maintenance, which requires six working days, must be performed on it. Does this interrupt production cycles, or is there enough time between cycles to perform the maintenance? Explain.

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 length of an order cycle?

Suppose that you are the manager of a production department that uses 400 boxes of rivets per year. The supplier quotes you a price of $8.50 per box for an order size of 199 boxes or less, a price of $8.00 per box for orders of 200 to 999 boxes, and a price of $7.50 per box for an order of 1,000 or more boxes. You assign a holding cost of 20 percent of the price to this inventory. What order quantity would you use if the objective is to minimize total annual costs of holding, purchasing, and ordering? Assume ordering cost is $80/order. D = 400 boxes per year S = $80 H = .20P

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

A manufacturer is contemplating a switch from buying to producing a certain item. Setup cost would be the same as ordering cost. The production rate would be about double the usage rate. Compared to the EOQ, the maximum inventory would be approximately:

In a supermarket, a vendor's restocking the shelves every Monday morning is an example of:

Understocking an inventory item is a sure sign of inadequate inventory control.