Exam 13: Inventory Management

Huckaby Motor Services,Inc.rebuilds small electrical items such as motors,alternators,and transformers,all using a certain type of copper wire.The firm's demand for this wire is approximately normal,averaging 20 spools per week,with a standard deviation of 6 spools per week.Cost per spool is $24; ordering costs are $25 per order; inventory handling cost is $4.00 per spool per year.Acquisition lead time is four weeks.The company works 50,5-day weeks per year. a.What is the optimal size of an order,if minimization of inventory system cost is the objective? b.What are the safety stock and reorder point if the desired service level is 90%?

The fixed-period inventory system requires more safety stock than a fixed-quantity system because:

The purpose of safety stock is to:

A(n)________ model gives satisfactory answers even with substantial variations in its parameters.

A specific product has demand during lead time of 100 units,with a standard deviation during lead time of 25 units.What safety stock (approximately)provides a 95% service level?

Which of the following is NOT an assumption of the economic order quantity model shown below? Q* =

Groundz Coffee Shop uses 4 pounds of a specialty tea weekly; each pound costs $16.Carrying costs are $1 per pound per week because space is very scarce.It costs the firm $8 to prepare an order.Assume the basic EOQ model with no shortages applies.Assume 52 weeks per year,closed on Mondays. a.How many pounds should Groundz order at a time? b.What is total annual cost (excluding item cost)of managing this item on a cost-minimizing basis? c.In pursuing lowest annual total cost,how many orders should Groundz place annually? d.How many days will there be between orders (assume 312 operating days)if Groundz practices EOQ behavior?

Which of the following is a function of inventory?

Louisiana Specialty Foods can produce its famous meat pies at a rate of 1650 cases of 48 pies each per day.The firm distributes the pies to regional stores and restaurants at a steady rate of 250 cases per day.The cost of setup,cleanup,idle time in transition from other products to pies,etc.,is $320.Annual holding costs are $11.50 per case.Assume 250 days per year. (a)Determine the optimum production run (batch size). (b)Determine the number of production runs per year. (c)Determine maximum inventory. (d)Determine total inventory-related (setup and carrying)costs per year (rounded to the nearest dollar).

A firm that makes electronic circuits has been ordering a certain raw material 250 ounces at a time.The firm estimates that carrying cost is I = 30% per year,and that ordering cost is about $20 per order.The current price of the ingredient is $200 per ounce.The assumptions of the basic EOQ model are thought to apply.For what value of annual demand is their action optimal?

Lead time for one of Montegut Manufacturing's fastest moving products is 4 days.Demand during this period averages 100 units per day.What would be an appropriate re-order point?

Explain what "decoupling" means in the context of inventory management.

In the EOQ model,for a given level of demand,annual holding cost is larger as the order quantity is ________.

Consider two inventory problems with identical demand,holding cost,and setup cost.In one,goods arrive instantly,but in the other goods arrive at a measurable rate.Which of these problems will have the larger optimal order quantity? Why?

A production order quantity problem has a daily demand rate = 10 and a daily production rate = 50.The production order quantity for this problem is approximately 612 units.What is the average inventory for this problem?

A local artisan uses supplies purchased from an overseas supplier.The owner believes the assumptions of the EOQ model are met reasonably well.Minimization of inventory costs is her objective.Relevant data,from the files of the craft firm,are annual demand (D)=150 units,ordering cost (S)= $42 per order,and holding cost (H)= $4 per unit per year a.How many should she order at one time? b.How many times per year will she replenish her inventory of this material? c.What will be the total annual inventory (holding and setup)costs associated with this material (rounded to the nearest dollar)? d.If she discovered that the carrying cost had been overstated,and was in reality only $1 per unit per year,what is the corrected value of EOQ?

Most inventory models attempt to minimize:

Several inventory models assume "independent demand." Explain what that term means and why the assumption is important.

Retail inventory that is unaccounted for between receipt and time of sale is known as shrinkage.

Which of the following statements regarding the production order quantity model is TRUE?