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Exam 13: Inventory Management

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Question 1

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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. What is the economic order quantity for resin?

A) 50 kilograms
B) 100 kilograms
C) 250 kilograms
D) 500 kilograms
E) 1,000 kilograms

F) A) and C)
G) A) and D)

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Question 2

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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. What is the economic order quantity for Stein beer?

A) 8 cases
B) 11 cases
C) 14 cases
D) 20 cases
E) 32 cases

F) B) and D)
G) B) and E)

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Question 3

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The injection molding department of a company uses 40 pounds of a powder a day. Inventory is reordered when the amount on hand is 240 pounds. Lead time averages five days. It is normally distributed and has a standard deviation of two days. What is the probability of a stockout during lead time?

Carrying cost is a function of order size; the larger the order, the higher the inventory carrying cost.

Using the EOQ model, the higher an item's carrying costs, the more frequently it will be ordered.

Monitoring inventory turns over time can be used as a measure of performance.

The purpose of cycle counting is to:

Average demand for a particular item is 1,200 units per year. It costs $100 to place an order for this item, and it costs $24 to hold one unit of this item in inventory for one year. If the fixed-order-interval model is chosen in this instance, how often (on average) will this item be ordered?

The fixed-order-interval model requires a larger amount of safety stock than the ROP model for the same risk of a stockout.

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. At what point should resin be reordered?

A shop owner uses a reorder point approach to restocking a certain raw material. Lead time is six days. Usage of the material during lead time is normally distributed with a mean of 42 pounds and a standard deviation of four pounds. When should the raw material be reordered if the acceptable risk of a stockout is 3 percent?

In the quantity discount model, if holding costs are given as a percentage of unit price, a graph of the total cost curves will have the same EOQ for each curve.

The inventory value of the supply chain exceeds the inventory value of the organization's work-in-process inventory.

ROP models indicate to managers the time between orders.

A single-period model would be used mainly by organizations going out of business.

The need for safety stocks can be reduced by an operations strategy which:

Given the following data for a particular inventory item: $\begin{array} { l l } \text { Usage } & 500 \text { units/week } \\\text { Ordering } & \$ 40 \text { per order } \\\text { Carrying Cost } & \$ .01 \text { per unit per week } \\\text { Lead Time } & 3 \text { weeks } \\\text { Price } & \$ .50 \text { per unit }\end{array}$ For the economic order quantity, what are average weekly total costs, including the cost of the inventory item?

Which of the following is least likely to be included in order costs?

The two basic issues in inventory are how much to order and when to order.

If there are shipping cost economies that result from bundling orders for different items together, the __________ model becomes a relatively more attractive option.