ADMS 3351

• Which of the following is not one of the categories of manufacturing inventory?

  Just-in-time.
• Which of the following is one of the categories of manufacturing inventory?

  Work-in-process.
• What is the basic purpose of inventory analysis?

  To specify when items should be ordered and how large the order should be.
• Firms keep supplies of inventory _____________.

  in case the supplier changes the design
• Which of the following is not a reason to carry inventory?

  To keep the stock out of the hands of competitors.
• When developing inventory cost models, which of the following is (are) not included as costs to place an order?

  Taxes
• When material is ordered from a vendor, which of the following is not a reason for delays in the order arriving on time?

  Redundant ordering systems.
• Which of the following is not included as an inventory holding cost?

  Annualized cost of materials.
• In making any decision that affects inventory size, which of the following costs do not need to be considered?

  Fixed costs.
• If a vendor has correctly used marginal analysis to select their stock levels for the day (as in the newsperson problem), and the profit resulting from the last unit being sold (Cu) is $0.90 and the loss resulting from that unit if it is not sold (C0) is $0.50, which of the following is the probability of the last unit being sold

  Greater than 0.357

  P < = Cu÷ (Cu+C0) = 0.90 ÷ 1.40 = 0.643. Since P is the probability that the unit will not be sold and 1 − P is the probability of it being sold, the answer to this question is 1 − 0.643 or 0.357.
• If a vendor has correctly used marginal analysis to select their stock levels for the day (as in the newsperson problem), and the profit resulting from the last unit being sold (Cu) is $120 and the loss resulting from that unit if it is not sold (C0) is $360, which of the following is the probability of the last unit being sold

  P < = Cu÷ (Cu+C0) = 120 ÷ 480 = 0.25. Since P is the probability that the unit will not be sold and 1 − P is the probability of it being sold, the answer to this question is 1 − 0.25 or 0.75.
• Which of the following is fixed-order quantity inventory model?


  Economic order quantity model.
• Which of the following is fixed-time period inventory model?

  Periodic system model.
• Which of the following is a perpetual system for inventory management?

  Fixed-order quantity.
• Which of the following is an assumption of the basic fixed-order quantity inventory model?

  Price per unit of product is constant.
• Which of the following is not an assumption of the basic fixed-order quantity inventory model?

  Diminishing returns to scale of holding inventory.
• Which of the following is the symbol used in the textbook for the cost of placing an order in the fixed-order quantity inventory model?

  S
• Which of the following is the set of all cost components that make up the fixed-order quantity total annual cost (TC) function?

  Annual holding cost, annual ordering cost, annual purchasing cost.

  Total Annual Cost = Annual Purchase Cost + Annual Ordering Cost + Annual Holding Cost.
• If annual demand is 12,000 units, the ordering cost is $6 per order, and the holding cost is $2.50 per unit per year, which of the following is the optimal order quantity using the fixed-order quantity model?

  Q = Square root of (2 × 12,000 × $6 ÷ $2.5) = 240
• If annual demand is 50,000 units, the ordering cost is $25 per order, and the holding cost is $5 per unit per year, which of the following is the optimal order quantity using the fixed-order quantity model?

  Q = Square root of (2 × 50,000 × $25 ÷ $5) = 707.1
• If annual demand is 35,000 units, the ordering cost is $50 per order, and the holding cost is $0.65 per unit per year, which of the following is the optimal order quantity using the fixed-order quantity model?

  Q = Square root of (2 × 35,000 × $50 ÷ $0.65) = 2,320.5
• Using the fixed-order quantity model, which of the following is the total ordering cost of inventory given an annual demand of 36,000 units, a cost per order of $80, and a holding cost per unit per year of $4?

  Q = Square root of (2 × 36,000 × $80 ÷ $4) = 1,200. Number of orders per year = 36,000 ÷ 1,200. Total ordering cost = 30 × $80 = $2,400
• A company is planning for its financing needs and uses the basic fixed-order quantity inventory model. Which of the following is the total cost (TC) of the inventory given an annual demand of 10,000, setup cost of $32, a holding cost per unit per year of $4, an EOQ of 400 units, and a cost per unit of inventory of $150?

  Q = 400. Average Inventory = Q/2 = 200. Holding cost/year = $4. Thus, annual holding cost = $800. Annual set-up cost = 10,000 ÷ 400 = 25 × $32 = $800. Demand × cost per unit = 10,000 × $150 = $1,500,000. Hence, TC = $1,500,000 + $800 + $800 = $1,501,600.
• A company has recorded the last five days of daily demand on their only product. Those values are 120, 125, 124, 128, and 133. The time from when an order is placed to when it arrives at the company from its vendor is 5 days. Assuming the basic fixed-order quantity inventory model fits this situation and no safety stock is needed, which of the following is the reorder point (R)?

  Average demand is 120 + 125 + 124 + 128 + 133 ÷ 5 = 126. Lead time = 5 days so the reorder point is 126 × 5 = 630.
• A company has recorded the last six days of daily demand on a single product they sell. Those values are 37, 115, 93, 112, 73, and 110. The time from when an order is placed to when it arrives at the company from its vendor is 3 days. Assuming the basic fixed-order quantity inventory model fits this situation and no safety stock is needed, which of the following is the reorder point (R)?

  Average demand is 37 + 115 + 93 + 112 + 73 + 110 ÷ 6 = 90. Lead time = 3 days so the reorder point is 90 × 3 = 270.
• Using the simple order quantity model in an inventory control problem, Kathy calculated the order quantity to be 1000 units. In a review, she found out that the demand is actually double that of the quantity she had used and the holding cost is only half that of the value she used, The new economic order quantity using the correct data will be

  2000
• Using the probability approach to determine an inventory safety stock and wanting to be 95 percent sure of covering inventory demand, which of the following is the number of standard deviations necessary to have the 95 percent service probability assured?

  Companies using this approach generally set the probability of not stocking out at 95 percent. This means we would carry about 1.64 standard deviations of safety stock.
• Assuming no safety stock, what is the reorder point (R) given an average daily demand of 50 units, a lead time of 10 days?

  50 × 10 = 500.
• Assuming no safety stock, what is the reorder point (R) given an average daily demand of 78 units and a lead time of 3 days?

  78 × 3 = 234
• To take into consideration demand uncertainty in reorder point (R) calculations, what do we add to the product of the average daily demand and lead time in days when calculating the value of R?

  The product of the standard deviation of demand variability and a z-score relating to a specific service probability.
• In order to determine the standard deviation of usage during lead time in the reorder point formula for a fixed-order quantity inventory model, which of the following must be computed first?

  Standard deviation of daily demand.
• If it takes a supplier four days to deliver an order once it has been placed and the standard deviation of daily demand is 10, which of the following is the standard deviation of usage during lead time?

  From equation 11.9, The standard deviation of usage during lead time is equal to the square root of the sums of the variances of the number of days of lead time. Since variance equals standard deviation squared, the standard deviation of usage during lead time is the square root of 4(10 × 10) = square root of 400 = 20.
• If it takes a supplier 25 days to deliver an order once it has been placed and the standard deviation of daily demand is 20, which of the following is the standard deviation of usage during lead time?

  Using equation 11.9 the standard deviation of usage during lead time will be the square root of (25 × (20 × 20)) = square root of 10,000 = 100.
• If it takes a supplier two days to deliver an order once it has been placed and the daily demand for three days has been 120, 124, and 125, which of the following is the standard deviation of usage during lead time?

  The standard deviation (Equation 11.8) of daily demand = Square root of (14 ÷ 3) = 2.1602. This number squared is 4.6667. The square root of (2 days × 4.6667) = the square root of 9.3333 or 3.055.
• A company wants to determine its reorder point (R). Demand is variable and they want to build a safety stock into R. If the average daily demand is 12, the lead time is 5 days, the desired z value is 1.96, and the standard deviation of usage during lead time is 3, which of the following is the desired value of R?

  Equation 11.6 is (average daily demand times number of days of lead time) plus (standard deviation during lead time) times (desired z-score) = (12 × 5) + (3 × 1.96) = 60 + 5.88 = 65.88 = 66 units
• A company wants to determine its reorder point (R). Demand is variable and they want to build a safety stock into R. Wants to have a service probability coverage of 95 percent. If average daily demand is 8, lead time is 3 days, and the standard deviation of usage during lead time is 2, which of the following is the desired value of R?


  Desired z score for service probability coverage of 95% = 1.64. Equation 11.6 is (average daily demand times number of days of lead time) +(standard deviation during lead time) times (desired z score) = (8 × 3) + (2 × 1.64) = 24 + 3.28 = 27.28 = about 27.3 units
• Which of the following is not necessary to compute the order quantity using the fixed-time period model with safety stock?

  Ordering cost.
• Using the fixed-time period inventory model, and given an average daily demand of 200 units, 4 days between inventory reviews, 5 days for lead time, 120 units of inventory on hand, a z of 1.96, and a standard deviation of demand over the review and lead time of 3 units, which of the following is the order quantity?

  Using equation 11.12, q = (200 × (5 + 4) + 1.96 × 3) − 120 = 1,800 + 5.88 − 120 = 1,685.88
• Using the fixed-time period inventory model, and given an average daily demand of 75 units, 10 days between inventory reviews, 2 days for lead time, 50 units of inventory on hand, a service probability of 95 percent, and a standard deviation of demand over the review and lead time of 8 units, which of the following is the order quantity?

  The z score for a service probability of 95% is 1.64. Using equation 11.12, q = 75 × (10 + 2) + (1.64 × 8) − 50 = 900 + 13.12 − 50 = 863.12
• Using the fixed-time period inventory model, and given an average daily demand of 15 units, 3 days between inventory reviews, 1 day for lead time, 30 units of inventory on hand, a service probability of 98 percent, and a standard deviation of daily demand is 3 units, which of the following is the order quantity?

  The z score for a desired service probability of 98% is 2.053. From equation 11.13, the standard deviation during review and lead time is the square root of (4 × (3 squared)) = 6 which is 6. Then, using equation 11.12, q = 15 × (3 + 1) + (2.05 × 6) − 30 = 60 + 12.3 − 30 = 42.3