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Mechanical Engineering Batch : GATE Crash Course 2023

Subject : Industrial Engineering DPP-02

Topic : Inventory Control

1. Daily demand of a product is normally distributed costs. Which one of the following observations is
with a mean of 50 units and a standard deviation of 5, CORRECT?
Supply conditions are virtually certain with a lead (1) The order quantity is optimal and total ordering
time of 6 days. If a 95 percent service level is desired, cost is equal to total holding cost.
the reorder point (Z0.95 = 1.645) is (2) The order quantity is optimal and total ordering
(1) 340 units (2) 320 units cost is more than total holding cost.
(3) 300 units (4) 280 units (3) The order quantity is not optimal and total
ordering cost is equal to total holding cost.
2. A grocery store faces a demand of 50 units of soap per (4) The order quantity is not optimal and total
day. The store orders soap periodically. It costs Rs. ordering cost is more than total holding cost.
100 to initiate a purchase order. It costs Rs. 0.04 per
soap per day to store the soap. The lead time between 6. An electrical appliances showroom sells 2,400 ceiling
placing and receiving the order is 4 days. The optimal fans in one year (52 weeks). The holding cost is 10%
inventory policy for ordering soap is to of the cost of the ceiling fan. The cost of one ceiling
(1) Order 500 units of soap whenever inventory level fan is Rs. 600. The cost incurred for placing an order
drops to 200 units is Rs. 201. There is a lead time of 5 weeks. The
(2) Order 500 units of soap whenever inventory level economic order quantity (EOQ) and the reorder level,
drops to 100 units respectively (rounded to the next higher integer) are
(3) Order 1000 units of soap whenever inventory (1) 231, 127 (2) 38, 213
level drops to 200 units (3) 127, 231 (4) 127, 13
(4) Order 1000 units of soap whenever inventory
level drops to 100 units 7. The annual demand of an item is 19845 units and the
production rate is 100 units per day. The per-unit
Common Data for Questions 3 and 4. production cost (excluding setup cost) is Rs. 50, the
The demand for soap at a retailer is 40 kg per day. The per-unit holding cost is Rs. 10 per year and setup cost
retailer buys soap from a company in bulk at the cost of is Rs. 520 per setup. To minimize the total annual
Rs. 50 per kg. The retailer incurs a cost of Rs. 200 to place cost, the optimum quantity to be produced per setup is
an order to the company, and a holding cost of Rs. 0.1 per ______.
kg per day to store the soap. The lead time between the
placing and receiving of orders is 3 days. The retailer’s 8. A car company manufactures 200 units of a
current ordering policy is to order 200 kg every 5 days component per day. The component is installed in
3. To avoid stock out situations, the retailer needs to different car models at a rate of 15000 units per year.
place orders when the inventory level(in kg) drops The company operates its production facility 300 days
(1) 40 (2) 60 per year to manufacture the component. The setup
(3) 80 (4) 120 cost for each production run is Rs. 200 and the
inventory holding cost per year is Rs. 2 per unit. The
4. If the retailer uses an optimum order policy to Economic Production Quantity (EPQ) is ______.
minimize the total cost, the saving in Rs. in the total
cost as compared to the current policy will be 9. The annual demand for an item is 3200 parts. Unit
(1) 10 (2) 20 cost is Rs. 6 and the inventory carrying charges are
(3) 40 (4) 50 estimated as 25% per annum. If the cost of one
procurement is Rs. 150, what will be the number of
5. The annual requirement of a raw material item is orders per year?
10,000 units. The holding cost of inventory for the (1) 4 (2) 6
item is 80 paise per unit per year and the ordering cost (3) 8 (4) 10
is Rs. 40 per order. The order quantity presently is
800 units per order. Assume that there are no other 10. Consider the following statements.
(a) Interests of Materials manager
(b) Interests of the top management
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(c) Pareto’s 80-20 rule inventory. Which one of the following statements is
Of the above, the basis for ABC analysis is correct?
(1) (b) (2) (b) and (c) (1) Rs. 1,60,000 is released
(3) (a) (4) (c) (2) Rs. 1,60,000 is additionally invested
(3) Rs. 60,000 is released
11. A project initially costs Rs 5,000 and generates year- (4) Rs. 60,000 is additionally invested
end cash inflows of Rs 18,000 Rs 1,600, Rs 1,400, Rs
1,200 and Rs 1,000 respectively in five years of its 13. A stockiest has to supply 400 units of a product every
life. If the rate of return is 10%, the net present value Monday to his customers. He gets the product at
(NPV) will be Rs. 50 per unit from the manufacturer. The cost of
(1) Rs 500 (2) Rs 450 ordering and transportation from the manufacturer to
(3) Rs 400 (4) Rs 350 the stockist’s premises is Rs. 75 per order. The cost of
carrying inventory is 7.5% per year of the cost of the
12. A firm’s inventory turnover of Rs. 8,00,000 is 5 times product. What are the economic lot size and the total
the cost of goods sold. If the inventory turnover is optimal cost (including capital cost) for the stockiest?
improved to 8 with the cost of goods sold remaining (1) 989 units/order and Rs. 20,065.80/week
the same, a substantial amount of fund is either (2) 812 units/order and Rs. 20,065.80/week
released from, or gets additionally invested in, (3) 989 units/order and Rs. 18,574.50/week
(4) 912 units/order and Rs. 18,574.50/week
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Answer Key
1. (2) 8. (2000)
2. (1) 9. (1)
3. (4) 10. (4)
11. (2)
4. (1)
12. (3)
5. (4) 13. (2)
6. (3)
7. (2127)

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