Exam 12: Inventory Management

Holding costs are $35 per unit per year,the ordering cost is $120 per order,and sales are relatively constant at 300 per month.(a)What is the optimal order quantity? (b)What are the annual holding and setup costs?

Milk is stocked at the grocery store each week.At the end of the week unsold milk is reduced in price by 70% and always sells for this lower price instantly.If weekly demand for milk is normally distributed with a mean of 200 gallons and standard deviation of 25 gallons,find the price for which a fresh gallon of milk sells.Assume a service level of 95% and that the store purchases milk for $2 per gallon.

Which of the following is a requirement of Q systems?

When demand is constant and lead time is variable,the safety stock computation requires three inputs: the value of Z,________,and the standard deviation of lead time.

________ inventory is material that is usually purchased,but has yet to enter the manufacturing process.

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 reorder point?

What is the primary purpose of the basic economic order quantity model shown below? Q* =

If demand is not uniform and constant,then stockout risks can be controlled by:

________ is the time between placement and receipt of an order.

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?

One advantage of cycle counting is that it maintains accurate inventory records.

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

An advantage of the fixed-period inventory system is that:

According to the global company profile,Amazon.com's advantage in inventory management comes from its almost fanatical use of economic order quantity and safety stock calculations.

Average daily demand for a product is normally distributed with a mean of 5 units and a standard deviation of 1 unit.Lead time is fixed at four days. (a)What is the reorder point if there is no safety stock? (b)What is the reorder point if the service level is 80 percent? (c)How much more safety stock is required if the service level is raised from 80 percent to 90 percent?

The new office supply discounter,Paper Clips,Etc.(PCE),sells a certain type of ergonomically correct office chair that costs $300.The annual holding cost rate is 40% of the item cost,annual demand is 900 units,and the ordering cost is $20 per order.The lead time is 4 days.Because demand is variable (standard deviation of daily demand is 2.4 chairs),PCE has decided to establish a customer service level of 90%.The store is open 300 days per year. (a)What is the optimal order quantity? (b)What is the safety stock? (c)What is the reorder point?

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

A disadvantage of the fixed-period inventory system is that:

Clement Bait and Tackle has been buying a chemical water conditioner for its bait (to help keep its baitfish alive)in an optimal fashion using EOQ analysis.The supplier has now offered Clement a discount of $0.50 off all units if the firm will make its purchases monthly or $1.00 off if the firm will make its purchases quarterly.Current data for the problem are: D = 720 units per year;S = $6.00,I = 20% per year;P = $25. (a)What is the EOQ at the current behavior? (b)What is the annual total cost,including product cost,of continuing their current behavior? (c)What are the annual total costs,if they accept either of the proposed discounts? (d)At the cheapest of the total costs,are carrying costs equal to ordering costs? Explain.

A printing company estimates that it will require 1,000 reams of a certain type of paper in a given period.The cost of carrying one unit in inventory for that period is 50 cents.The company buys the paper from a wholesaler in the same town,sending its own truck to pick up the orders at a fixed cost of $20.00 per trip.Treating this cost as the order cost, (a)what is the optimum number of reams to buy at one time? (b)How many times should lots of this size be bought during this period? (c)What is the minimum cost (holding and setup)of maintaining inventory on this item for the period? (d)Of this total cost,how much is carrying cost and how much is ordering cost?