Chapter 6: Inventory Control Models Multiple Choice

1 .       The annual demand for a product has been projected to be 2,000 units. This demand is assumed to be constant throughout the year. The ordering cost is \$20 per order, and the holding cost is 20 percent of the purchase cost. Currently, the purchase cost is \$40 per unit. There are 250 working days per year. Whenever an order is placed, it is known that the entire order will arrive on a truck in six days. If the total holding cost for the year is \$2,000, how many units does the company order at a time? [Hint]

 300 400 500 600 none of the above

2 .       The annual demand for a product has been projected to be 2,000 units. This demand is assumed to be constant throughout the year. The ordering cost is \$20 per order, and the holding cost is 20 percent of the purchase cost. The purchase cost is \$40 per unit. There are 250 working days per year. Whenever an order is placed, it is known that the entire order will arrive on a truck in six days. Currently, the company is ordering 500 units each time an order is placed. What level of safety stock would give a reorder point of 60 units? [Hint]

 10 14 18 22 none of the above

3 .       Mark Achin sells 3,600 electric motors each year. The cost of these is \$200 each, and demand is constant throughout the year. The holding cost is \$20 per unit per year. If Mark is ordering in lots of 90 units, what is his total order cost per year? [Hint]

 \$500 \$700 \$900 \$1,100 insufficient information to answer the question

4 .       Mark Achin sells 3,600 electric motors each year. The cost of these is \$200 each, and demand is constant throughout the year. The holding cost is \$20 per unit per year. There are 360 working days per year and the lead time is five days. Assuming that Mark orders 200 units (the EOQ) each time he places an order, what would be his total ordering cost per year? [Hint]

 \$2,000 \$2,720 \$200 \$720 none of the above

5 .       Andre Candess manages an office supply store. One product in the store is computer paper. Andre knows that 10,000 boxes will be sold this year at a constant rate throughout the year. There are 250 working days per year. The cost of placing an order is \$30, while the holding cost is \$15 per box per year. What is the delivery lead time? [Hint]

 5 days 6 days insufficient information to answer the question 8 days none of the above

6 .       A person is using the normal distribution to determine the safety stock for a product. The "z" value of 1.28 would be associated with what service level? [Hint]

 40 percent 95 percent 70 percent 90 percent none of the above

7 .       A person is using the normal distribution to determine the safety stock for a product. The "z" value of 1.65 would be associated with what service level? [Hint]

 90 percent 95 percent 100 percent 92.5 percent none of the above

8 .       Which of the following are not assumptions of the basic EOQ model? [Hint]

 Demand is known and constant. Inventory receipt is instantaneous. Quantity discounts are not possible. Placing orders at the right time can eliminate stockouts. none of the above

9 .       The purpose of safety stock is to [Hint]