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Exam 8: Inventory Models

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Question 31

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In the basic economic order quantity (EOQ) model, a doubling of estimated annual demand would lead to what change in Q*?

A) A doubling.
B) No change.
C) More than a 50% decrease.
D) Less than a 50% increase.

E) None of the above
F) All of the above

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Question 32

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If sales data differs from demand, what constitutes the difference?

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When sales data differs from demand, the...

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Question 33

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Holding costs and procurement/manufacturing costs are both functions of the unit cost of the item.

The inventory holding cost is proportional to the order quantity, but the annual ordering cost is inversely proportional to the order quantity.Annual procurement costs do not depend on the order quantity.

Which of the following is not a main category of cost in inventory models?

The economic order quantity model assumes the item has little or no shrinkage.

In the planned shortage model, what is the difference between annual time-dependent shortage cost and annual time-independent shortage cost?

In the ABC classification system, "C" items typically account for:

Monthly sales of Better House magazine at Smith's Foods follow a normal distribution with a mean of 140 copies and a standard deviation of 15 copies.The magazine sells at Smith's for $1.25 a copy and costs Smith's $.50 per copy.Unsold copies are repurchased by the publisher for $.10 per copy.Smith's management estimates that if it runs out of Better House magazine it suffers a goodwill loss of approximately $.80 for each unsatisfied customer. A.Determine Smith's optimal order quantity each month for Better House magazine. B.Determine Smith's expected monthly profit from Better House magazine if it orders optimally. C.The publisher of Better House magazine is offering Smith's the following option.It will increase its selling price from $.50 to $.55, but will also increase the amount it credits returned magazines from $.10 to $.25.Should Smith's take this deal? Give your reasons.

Inclusion of quantity discounts may influence both the order quantity and the reorder point.

In the single period inventory model:

Flavin Cosmetics produces 80,000 tubes of lipstick monthly.Itcurrently purchases the cases used in its lipsticks from McGraw Metals.The cases cost Flavin $.045 each and the cost to place an order with McGraw is estimated to be $150.Approximately a half percent of all cases delivered by McGraw are defective so that Flavin must order 80,402 (80,000/.995) cases to support its production. Flavin is considering producing the cases in-house.It can do this by leasing a casing machine at a cost of $9,000 per year which is capable of producing 200,000 tubes per month.The production set up cost to use this machine is $200 and the incremental production cost of cases is $.038.In this case, there will be no defective cases. Flavin estimates its holding cost rate for cases is 20% whether they are purchased or produced in-house. A.Determine whether Flavin should continue to purchase cases from McGraw or begin in-house production if their objective is to minimize the cost of lipstick production. B.What is Flavin's optimal purchase or production quantity?

Below is the published all units discount schedule for cases of Brightall lightbulbs, with breakpoints at 100, 250, and 500. $\begin{array} { c c } < 100 \text { cases } & \$ 5.00 / \mathrm { case } \\100 - 250 \text { cases } & \$ 4.50 / \mathrm { case } \\251 - 500 \text { cases } & \$ 4.00 / \mathrm { case } \\> 500 \text { cases } & \$ 3.80 / \mathrm { case }\end{array}$ Obviously, no one would buy 99 cases at a cost of $495 since you can get 110 cases at the same price.What are the real breakpoints?

Opportunity cost (or shrinkage or obsolescence) is an example of: