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Exam 13: Inventory Management

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Question 81

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A firm stocks a seasonal item that it buys for $22/unit and sells for $29/unit. During the season, daily demand can be described using a Poisson distribution with a mean of 2.4. Because of the nature of the item, units remaining at the close of business each day must be removed at a cost of $2 each. What is the optimum stocking level, and what is the effective service level?

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C_s = $29 - $22 = $7
C_e = $22 + $2 = $24 F...

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Question 82

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In the basic EOQ model, if lead time increases from five to 10 days, the EOQ will:

A) double.
B) increase, but not double.
C) decrease by a factor of 2.
D) remain the same.
E) increase, but more information is needed to calculate exactly how much.

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Question 83

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A manager has just received a revised price schedule from a vendor: $\begin{array} { l l } \text { Quantity } & \text { Unit Price } \\\hline 1 \text { to } 39 \text { units } & \$ 14 \\40 \text { to } 59 \text { units } & \$ 13 \\60 \text { to } 89 \text { units } & \$ 12 \\90 \text { or more units } & \$ 11\end{array}$ What order quantity should the manager use in order to minimize total costs?Annual demand is 120 units, ordering cost is $8, and annual carrying cost is $1 per unit.

A service garage uses 120 boxes of cleaning cloths a year. The boxes cost $6 each. Ordering cost is $3 and holding cost is 10 percent of purchase cost per unit on an annual basis. Determine: (A) the economic order quantity (B) the total cost of carrying the cloths (excluding purchase price) (C) the average inventory D = 120 boxes per year S = $3 H = .10($6) = $.60 per box-year

In a single-period model, if shortage cost is four times excess cost, then the optimum service level is ___ percent.

The fixed-order-interval model would be most likely to be used for this situation:

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. At what point should he reorder Stein beer?

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, if she were to order 6,000 bills at a time, what would be the length of an order cycle?

The A-B-C approach involves classifying inventory items by unit cost, with expensive items classified as A items and low-cost items classified as C items.

ROP models assume that demand during lead time is composed of a series of dependent daily demands.

Profit margins tend to be inversely related to inventory turns.

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?

The fixed-order-interval model requires a continuous monitoring of inventory levels.

The total cost curve is relatively flat near the EOQ.

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

A risk avoider would want ______ safety stock.

Variability in demand and/or lead time can be compensated for by safety stock.

A manager reorders lubricant when the amount on hand reaches 422 pounds. Average daily usage is 45 pounds, which is normally distributed with a standard deviation of three pounds per day. Lead time is nine days. What is the risk of a stockout?

In the basic EOQ model, if D = 60 per month, S = $12, and H = $10 per unit per month, EOQ is:

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