Exam 2

Question 1

The projected demand rate for an inventory item is 300 units per week (on average), and we use the item 52 weeks per year

We buy the item at a cost of $30 per unit. Our fixed ordering cost (“S”) is $100 per order, and we purchase this item using a purchase quantity Q = 500 units per order.

Our annual carrying cost rate is 20%

If the current weekly demand rate of 300 units per week lasts forever, then at 52 weeks per year the annual demand rate is D = _________ units per year.

Answer 1

15600 (300 units per week x 52 weeks per year = 15,600 units per year)

Question 2

The projected demand rate for an inventory item is 300 units per week (on average), and we use the item 52 weeks per year

We buy the item at a cost of $30 per unit. Our fixed ordering cost (“S”) is $100 per order, and we purchase this item using a purchase quantity Q = 500 units per order.

Our annual carrying cost rate is 20%

If the current demand rate lasts forever and we always buy this item using an order quantity Q = 500 units per order, then our long run average number of orders per year is ____________.

Answer 2

31.2 (D / Q = 15,600 units per year/ 500 units per order = 31.2 orders per year)

Question 3

The projected demand rate for an inventory item is 300 units per week (on average), and we use the item 52 weeks per year

We buy the item at a cost of $30 per unit. Our fixed ordering cost (“S”) is $100 per order, and we purchase this item using a purchase quantity Q = 500 units per order.

Our annual carrying cost rate is 20%

Using all of the preceding information, our long run average total ordering cost per year is $_________ per year.

Answer 3

3120 (31.2 orders per year x $100 per order = $3120 per year average annual ordering cost (AOC))

Question 4

The projected demand rate for an inventory item is 300 units per week (on average), and we use the item 52 weeks per year

We buy the item at a cost of $30 per unit. Our fixed ordering cost (“S”) is $100 per order, and we purchase this item using a purchase quantity Q = 500 units per order.

Our annual carrying cost rate is 20%

Using all of the preceding information, our annual carrying cost per unit is H = $ _______ per unit per year.

Answer 4

6 (20% of $30/unit is .20(30) = $6.00 per unit per year. )

Question 5

The projected demand rate for an inventory item is 300 units per week (on average), and we use the item 52 weeks per year

We buy the item at a cost of $30 per unit. Our fixed ordering cost (“S”) is $100 per order, and we purchase this item using a purchase quantity Q = 500 units per order.

Our annual carrying cost rate is 20%

Using all of the preceding information, our average cycle stock inventory level is ___________ units.

Answer 5

250 (Q/2 = 500/2 = 250 units on average.)

Question 6

The projected demand rate for an inventory item is 300 units per week (on average), and we use the item 52 weeks per year

We buy the item at a cost of $30 per unit. Our fixed ordering cost (“S”) is $100 per order, and we purchase this item using a purchase quantity Q = 500 units per order.

Our annual carrying cost rate is 20%

Using all of the preceding information, our long run average carrying cost per year (on “cycle stock”) for this item is $___________ per year.

Answer 6

1500 ($6.00 per unit per year x 250 units average cycle stock = 6 x 250 = $1500 per year average annual carrying cost (ACC) on cycle stock)

Question 7

The projected demand rate for an inventory item is 300 units per week (on average), and we use the item 52 weeks per year

We buy the item at a cost of $30 per unit. Our fixed ordering cost (“S”) is $100 per order, and we purchase this item using a purchase quantity Q = 500 units per order.

Our annual carrying cost rate is 20%

Using all of the preceding information, our total annual purchase cost (as distinct from ordering costs and carrying costs) for this item is $__________ per year. Because there are no quantity discounts based on quantity per order, this does not depend on how many units we order at a time.

Answer 7

468000 (D = 15,600 units per year, at a cost of $30 per unit means we spend 30 x 15600 = $468,000 per year. )

Question 8

The projected demand rate for an inventory item is 300 units per week, and we use the item 52 weeks per year

We buy the item at a cost of $30 per unit. Our fixed ordering cost (“S”) is $100 per order, and our annual carrying cost rate is 20%

What is the Economic Order Quantity (EOQ) for this item?

Answer 8

721.11
(EOQ = SQRT ( 2 x15600 x100 / 6) = SQRT(520,000) = 721.11 units per order)

Question 9

The projected demand rate for an inventory item is 300 units per week, and we use the item 52 weeks per year

We buy the item at a cost of $30 per unit. Our fixed ordering cost (“S”) is $100 per order, and our annual carrying cost rate is 20%

Using your answer to the question above, compute the total annual ordering cost (AOC) and total annual carrying cost (ACC) if we use the EOQ order quantity.

Answer 9

ACC and AOC is 2163

(Q= 721

15600/721= 21.64 orders per year

100 x 21.64 = 2164

721/2= 360.5 average cycle stock

ACC= 6 x360.5 = $2163

AOC is equal to ACC)

Question 10

Average demand during lead time is 50 units. I have set my reorder point to R = 70 units. This means I should order when my inventory position gets down to _____

Answer 10

70

Question 11

Average demand during lead time is 50 units. I have set my reorder point to R = 70 units. What is my average safety stock level?

Answer 11

20

Question 12

Average demand during lead time is 50 units and I want to carry 15 units of safety stock. I need to set my order point to R =

Answer 12

65

Question 13

If I set up my order point R to have a 95% service level, which of the following are true? (Select all that apply.)

a) There is a 95% chance (.95 probability) that demand during lead time will be less than or equal to R

b) There is a 5% chance (.05 probability) that I will have inventory shortages before my order is received.

c) P(Demand during lead time R) = .95

d) Each time I order, there is a 95% chance that having R units on hand when I place the order will be enough to last through the order lead time without having inventory shortages

Answer 13

all of the above

Question 14

Demand during lead time is normally distributed with mean = 200 and standard deviation = 30. If I set my order point to R = 275, then my order point is how many standard deviations above the mean?

Answer 14

2.5
(275 = 200 + z(30). Solve for z:

z = (275 - 200) / 30 = 75 / 30 = 2.5

Question 15

If demand is variable, then the time required to use Q units is ____

Answer 15

variable

Question 16

D=

Answer 16

projected average demand rate

Question 17

Q=

Answer 17

order quantity

Question 18

Average number of orders per year=

Answer 18

D/Q

Question 19

S=

Answer 19

fixed ordering or setup cost

Question 20

AOC (annual ordering cost)=

Answer 20

S x (D/Q)

Question 21

Average Cycle Stock Inventory=

Answer 21

Q/2

Question 22

H=

Answer 22

holding (carrying) cost per unit (often a percentage)

Question 23

Annual Carrying Cost=

Answer 23

H x (Q/2)

Question 24

Reorder point

Answer 24

We reorder when inventory falls to R units

Question 25

Lead time

Answer 25

After we order, we wait L periods to receive the order

Question 26

Demand during Lead Time

Answer 26

is the quantity used while we wait those L periods

Question 27

Increasing R:

Answer 27

1. Increases the average quantity on hand when the order is received
2. Decreases the chance we “run out”

Question 28

Safety Stock:

Answer 28

the average amount on hand when the order is received

Question 29

Service Level:

Answer 29

is the probability we don’t have inventory shortages while waiting for the order to come in

Question 30

At the current demand rate, daily demand for an inventory item is normally distributed with mean = 25 units and standard deviation 4. We use this item 365 days per year, and the order lead time is 7 days (1 week) whenever we reorder to replenish our inventory.

If I was going to determine the order quantity Q to use in a (Q, R) system for this item, my EOQ analysis would use annual demand D = ____________ units per year. {Assume you are going to use a yearly carrying cost H = $ per unit per year in your EOQ formula.}

Answer 30

9125
(25 per day x 365 days = 9125 units per year.

25 per day x 250 days = 6250 units per year. Problem stated we use the item 365 days per year.)

Question 31

At the current demand rate, daily demand for an inventory item is normally distributed with mean = 25 units and standard deviation 4. We use this item 365 days per year, and the order lead time is 7 days (1 week) whenever we reorder to replenish our inventory.

If I was going to find the reorder point R needed to achieve 95% service level for this item, I would use _____ as the average demand during lead time

Answer 31

175
(25 per day x 7 days)

Question 32

At the current demand rate, daily demand for an inventory item is normally distributed with mean = 25 units and standard deviation 4. We use this item 365 days per year, and the order lead time is 7 days (1 week) whenever we reorder to replenish our inventory.

If I was going to find the reorder point R needed to achieve 95% service level for this item, I would use _____ as the standard deviation of demand during lead time. (Round your answer to two decimal places.)

Answer 32

10.58
(4 x (square root) 7= 10.58)

Question 33

Annual demand for an inventory item is 20,000 units per year. I order this item using an order quantity Q = 250 units per order.

What is my average number of orders per year?

Answer 33

80

Question 34

Annual demand for an inventory item is 20,000 units per year. I order this item using an order quantity Q = 250 units per order.

In the question above, what is the average number of stock-outs per year if my order point R is chosen to have a 95% service level?

Answer 34

4

Question 35

Annual demand for an inventory item is 20,000 units per year. I order this item using an order quantity Q = 250 units per order.

In the question above, what is the average number of stock-outs per year if my order point R is chosen to have a 95% service level?

In the question above, what is the average time between stockouts, measured in years?

Answer 35

.25

Question 36

Annual demand for an inventory item is 20,000 units per year. I order this item using an order quantity Q = 250 units per order.

In the question above, what is the average number of stock-outs per year if my order point R is chosen to have a 95% service level?

In the question above, what is the average time between stockouts, measured in years?

Suppose in the scenario above (D = 20,000 units per year and Q = 250 units per order) our order point R is set to have a 99 % service level. Now what is the average number of stock-outs per year?

Answer 36

.8

Question 37

In a (Q, R) inventory ordering system, increasing the order quantity Q will: (Check all of the true statements)

1. Cause us to order more frequently (smaller time between orders and larger number of orders per year)
2. Cause us to order less frequently (larger time between orders and fewer orders per year)

3.Increase the average cycle stock level

4. Increase the average safety stock level

Answer 37

2 and 3

Question 38

In a (Q, R) inventory ordering system, increasing the reorder point (R) will: (check all of the true statements)

1.Cause us to order more frequently (smaller time between orders and larger number of orders per year)

2.Cause us to order less frequently (larger time between orders and fewer orders per year)

3.Increase the average cycle stock level

4.Increase the average safety stock level

Answer 38

4

Question 39

If you are going to carry more inventory, and if the reason for carrying that inventory is to reduce the frequency of inventory shortages, which type of inventory should be increased?

(Cycle stock, Safety stock, Neither type is more efficient than the other it’s all just inventory)

Answer 39

Safety Stock

Question 40

If you are going to carry more inventory, and if the reason for carrying that inventory is to reduce the frequency of ordering, which type of inventory should be increased?

(Cycle stock, Safety stock, Neither type is more efficient than the other it’s all just inventory)

Answer 40

Cycle Stock

Question 41

Shortages are prevented by carrying _____.
(Safety Stock or Cycle Stock)

Answer 41

Safety Stock