Exam 13: Inventory Management

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 average inventory level?

The calculation of safety stock requires knowledge of demand and lead time variability.

A quantity discount will lower the reorder point.

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

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 copies sell for $4.25 each, find the optimal stocking level.

The average inventory level is inversely related to order size.

The manager of a bakery orders three "cake-to-go" wedding cakes every Saturday to accommodate last-minute purchases. Demand for the cakes can be described by a Poisson distribution that has a mean of 2. The cakes cost $10 each to prepare, and they sell for $26 each. Any cakes that haven't been sold by the end of the day are sold for half price the next day. Usually, half of those are sold and the rest are tossed. What stocking level would be appropriate?

All of the following are possible reasons for using the fixed-order-interval model except:

A nonlinear cost related to order size is the cost of:

Estimated demand for gold-filled lockets at Sam's Bargain Jewelry and Housewares is 2,420 lockets a year. Manager Veronica Winters has indicated that ordering cost is $45, and that the following price schedule applies: 1 to 599 lockets, $.90 each; 600 to 1,199 lockets, $.80 each; and 1,200 or more, $.75 each. What order size will minimize total cost if carrying cost is $.18 per locket on an annual basis? D = 2,420 lockets per year S = $45 H = $.18 per locket

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 length of an order cycle?

An operations strategy for inventory management should work toward:

Which is not a true assumption in the EOQ model?

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. If she were to order 6,000 bills at a time, what would be the average monthly total costs, EXCLUDING the value of the bills?

Solving quality problems can lead to lower inventory levels.

Which item would be least likely to be ordered under a fixed-order-interval system?

A bakery's use of corn sweetener is normally distributed with a mean of 80 gallons per day and a standard deviation of four gallons per day. Lead time for delivery of the corn sweetener is normal, with a mean of six days and a standard deviation of two days. If the manager wants a service level of 99 percent, what reorder point should be used?

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 daily total inventory costs, EXCLUDING the cost of the beer?

In a single-period inventory situation, the probabilities that demand will be 1, 2, 3, or 4 units are .3, .3, .2, and .2, respectively. If two units are stocked, what is the probability of selling both of them?

Weekly demand for a particular item averages 30 units, with a standard deviation of 4. This item is managed with a fixed-order-interval model. The order interval is three weeks, and this item has a certain lead time of one week. The desired service level is 97.5 percent. Assume that it is now time to place another order, and there are 43 units on hand. How many units should be ordered?