Tutorial 7

28) Inventory
A) is any stored resource used to satisfy current or future need.

B) includes raw materials, work-in-process, and finished goods.
C) levels for finished goods are a direct function of demand.
D) needs from raw materials through finished goods can be reasonably determined, once finished
goods demand is determined.
E) All of the above
29) Which of the following is not a use of inventory?

A) the decoupling function
B) quantity discounts
C) irregular supply and demand
D) the translucent function
E) to avoid stockouts and shortages
30) In making inventory decisions, the purpose of the basic EOQ model is to
A) minimize carrying costs.
B) minimize ordering costs.
C) minimize the sum of carrying costs and ordering costs.
D) minimize customer dissatisfaction.
E) minimize stock on hand.
31) Which of the following is not considered a significant inventory cost?

A) cost of production labor
B) purchase cost
C) cost of stockouts
D) cost of carrying an item
E) cost of ordering
32) Which of the following is part of the determination of EOQ?

A) cost of production labor
B) cost of stockouts
C) purchase cost
D) annual demand
E) total revenue
85) East Valve Distributors distributes industrial valves and control devices. The Eastern control
device has an annual demand of 9,375 units and sells for $100 per unit. The cost of ordering is $160
per order and the average carrying cost per unit per year is $0.75. Determine the economic order
quantity.
86) A company annually uses 1,200 of a certain spare part that costs $25 for each order and has a $24
annual holding cost. Calculate the total annual cost for order sizes of: 25, 40, 50, 60, and 100. Identify
the economic order quantity, and consider the implications for making an error in calculating the
economic order quantity.
87) David and Beth Sheba run a health food store. Their top selling item is called Heavenly Kelp. The
annual demand for this is 810 units, and demand is constant throughout the year. The cost of placing
an order is $20, while the holding cost per unit per year is $4.
(a) How many orders per year should be placed if they wish to minimize their total cost?
(b) What is the minimum possible annual holding and ordering cost?
88) Everett Mann's Dream Store sells waterbeds and supplies. The best selling bed in the store has an
annual demand of 400 units. The ordering cost is $40, while the holding cost is $5 per unit per year.
There are 250 working days per year, and the lead-time is 6 days.
(a) To minimize total cost, how many units should be ordered each time an order is placed?
(b) If the holding cost per unit was $6 instead of $5, what would the optimal order quantity be?
89) Ivonne Callen sells beauty supplies. Her annual demand for a particular skin lotion is 1,000 units.
The cost of placing an order is $20, while the holding cost per unit per year is 10 percent of the cost.
This item currently costs $10 if the order quantity is less than 300. For orders of 300 units or more, the
cost falls to $9.80. To minimize total cost, how many units should Ivonne order each time she places
an order? What is the minimum total cost?
91) ArtOrgan, Ltd. distributes mechanical replacements for human mitral heart valves. Its artificial
valve has a demand of 12,765 units per year and sells for $7,900 per unit. The cost of ordering is $75
per order and the average carrying cost per unit per year is $150. Determine the economic order
quantity.
92) Furniture Manufacturers Inc., uses 20,000 loads of lumber per year. A load of lumber costs $500
and the carrying cost is 10 percent of the unit cost. The cost to order is $200 per order and the lead-
time is three working days. Assuming 200 working days, determine:
(a) the economic order quantity.
(b) the reorder point.
(c) number of orders per year.
(d) working days between orders.
93) A company uses 1,500 per year of a certain subassembly that has an annual holding cost of $45 per
unit. Each order placed costs $150. The company operates 300 days per year and it has found that an
order must be placed with the supplier 6 working days before it can expect to receive that order. For
this subassembly, find:
(b) the annual holding cost.
(c) the annual ordering cost.
(d) the reorder point.
94) The H.A.L. Computer Store sells a printer for $200. Demand for this is constant during the year,
and annual demand is forecasted to be 600 units. The holding cost is $20 per unit per year, while the
cost of ordering is $60 per order. Currently, the company is ordering 12 times per year (50 units each
time). There are 250 working days per year and the lead-time is 10 days.
(a) Given the current policy of ordering 50 units at a time, what is the total of the annual
ordering cost and the annual holding cost?
(b) If the company used the absolute best inventory policy, what would the total of the ordering
and holding cost be?
(c) What is the reorder point?
95) Purinnerds Dog Food is a very popular product at Kay Gnein's corner grocery. Demand for this is
relatively constant, and the total demand for the year is 1,200 bags. The cost of placing an order is
$50, while the holding cost is $3 per unit per year. The store is open 300 days per year. Lead-time for
this is 8 days.
(a) If Kay places 50 orders per year, what would her annual ordering and holding costs be?
(b) If Kay wishes to minimize her total inventory cost, how many units should she order each
time an order is placed?
(c) What is the reorder point?
96) A company uses 2,750 per year of a certain subassembly that has a purchase cost of $450, and an
annual holding cost of $500 per unit. Each order placed costs $150. The company operates 300 days
per year and it has found that an order must be placed with the supplier 12 working days before it
can expect to receive that order. For this subassembly, find:
(b) the reorder point.
97) The H.A.L. Computer Store sells a printer for $400. Demand for this is constant during the year,
and annual demand is forecasted to be 1350 units. The holding cost is $20 per unit per year, while the
cost of ordering is $90 per order. Currently, the company is ordering 12 times per year (92 units each
time). There are 270 working days per year and the lead-time is 8 days. What should be the reorder
point?

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28) Inventory

A) is any stored resource used to satisfy current or future need.

29) Which of the following is not a use of inventory?

31) Which of the following is not considered a significant inventory cost?

32) Which of the following is part of the determination of EOQ?

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