Chapter 12 Inventory Management Section 4 Inventory Models For Independent Demand

If setup costs are reduced by substantial reductions in setup time, the production order quantity is also reduced.

The EOQ model is best suited for items whose demand is dependent on other products.

In the simple EOQ model, if annual demand were to increase, the EOQ would increase proportionately.

At the economic order quantity, holding costs are equal to product costs.

In the simple EOQ model, if the carrying cost were to double, the EOQ would also double.

In the production order quantity model, inventory does not arrive in a single moment but flows in at a steady rate, resulting in a larger production/order quantity than in an otherwise identical EOQ problem

he reorder point is the inventory level at which action is taken to replenish the stocked item.

) In the quantity discount model, it is possible to have a cost-minimizing solution where annual ordering costs do not equal annual carrying costs.

In the quantity discount model, the cost of acquiring goods (product cost) is not a factor in determining lot size.

The two most basic inventory questions answered by the typical inventory model are: A) timing of orders and cost of orders. B) order quantity and cost of orders. C) timing of orders and order quantity. D) order quantity and service level. E) ordering cost and carrying cost.

Which of the following is NOT an assumption of the economic order quantity model shown below? Q* = Square root 2DS/H A) Demand is known, constant, and independent. B) Lead time is known and consistent. C) Quantity discounts are not possible. D) Production and use can occur simultaneously. E) The only variable costs are setup cost and holding (or carrying) cost.

What is the primary purpose of the basic economic order quantity model shown below? Q* = Square root 2DS/H A) to calculate the reorder point, so that replenishments take place at the proper time B) to minimize the sum of carrying cost and holding cost C) to maximize the customer service level D) to minimize the sum of setup cost and holding cost E) to calculate the optimum safety stock

If the actual order quantity is the economic order quantity in a problem that meets the assumptions of the economic order quantity model shown below, the average amount of inventory on hand: Q* = Square root 2DS/H A) is smaller than the holding cost per unit. B) is zero. C) is one-half of the economic order quantity. D) goes down if the setup cost per order goes up. E) goes down if the holding cost per unit goes down.

14) A certain type of computer costs $1,000, and the annual holding cost is 25% of the value of the item. Annual demand is 10,000 units, and the order cost is $150 per order. What is the approximate economic order quantity? A) 16 B) 70 C) 110 D) 183 E) 600

15) Most inventory models attempt to minimize: A) the likelihood of a stockout. B) the number of items ordered. C) total inventory-based costs. D) the number of orders placed. E) the safety stock.

In the basic EOQ model, if the cost of placing an order doubles, and all other values remain constant, the EOQ will: A) increase by about 41%. B) increase by 100%. C) increase by 200%. D) increase, but more data is needed to say by how much. E) either increase or decrease.

17) In the basic EOQ model, if D = 6000 per year, S = $100, and holding cost = $5 per unit per month, what is the economic order quantity? A) 24 B) 100 C) 141 D) 490 E) 600

18) Which of the following statements about the basic EOQ model is TRUE? A) If the ordering cost were to double, the EOQ would rise. B) If annual demand were to double, the EOQ would increase. C) If the carrying cost were to increase, the EOQ would fall. D) If annual demand were to double, the number of orders per year would increase. E) All of the above statements are true.

19) Which of the following statements about the basic EOQ model is FALSE? A) If the setup cost were to decrease, the EOQ would fall. B) If annual demand were to double, the number of orders per year would increase. C) If the ordering cost were to increase, the EOQ would rise. D) If annual demand were to double, the EOQ would also double. E) All of the above statements are true.

20) A product whose EOQ is 40 units experiences a decrease in ordering cost from $90 per order to $10 per order. The revised EOQ is: A) three times as large. B) one-third as large. C) nine times as large. D) one-ninth as large. E) cannot be determined

21) A product whose EOQ is 400 units experiences a 50% increase in demand. The new EOQ is: A) unchanged. B) increased by less than 50%. C) increased by 50%. D) increased by more than 50%. E) cannot be determined

22) For a certain item, the cost-minimizing order quantity obtained with the basic EOQ model is 200 units, and the total annual inventory (carrying and setup) cost is $600. What is the inventory carrying cost per unit per year for this item? A) $1.50 B) $2.00 C) $3.00 D) $150.00 E) not enough data to determine

A product has a demand of 4000 units per year. Ordering cost is $20, and holding cost is $4 per unit per year. The EOQ model is appropriate. The cost-minimizing solution for this product will cost ________ per year in total annual inventory (holding and setup) costs. A) $400 B) $800 C) $1200 D) Zero; this is a class C item. E) Cannot be determined because the unit price is not known.

A product has a demand of 4000 units per year. Ordering cost is $20, and holding cost is $4 per unit per year. The cost-minimizing solution for this product is to order: A) all 4000 units at one time. B) 200 units per order. C) every 20 days. D) 10 times per year. E) none of the above

Which of the following statements regarding the reorder point is TRUE? A) The reorder point is that quantity that triggers an action to restock an item. B) There is a reorder point even if lead time and demand during lead time are constant. C) The reorder point is larger than d × L if safety stock is present. D) A shorter lead time implies a smaller reorder point. E) All of the above are true.

An inventory decision rule states, "When the inventory level goes down to 14 gearboxes, 100 gearboxes will be ordered." Which of the following statements is TRUE? A) One hundred is the reorder point, and 14 is the order quantity. B) Fourteen is the reorder point, and 100 is the order quantity. C) The number 100 is a function of demand during lead time. D) Fourteen is the safety stock, and 100 is the reorder point. E) None of the above is true.

Which of the following statements regarding the production order quantity model is TRUE? A) It applies only to items produced in the firm's own production departments. B) It relaxes the assumption that all the order quantity is received at one time. C) It relaxes the assumption that the demand rate is constant. D) It minimizes the total production costs. E) It minimizes inventory.

Which of these statements about the production order quantity model is FALSE? A) The production order quantity model is appropriate when the assumptions of the basic EOQ model are met, except that receipt is noninstantaneous. B) Because receipt is noninstantaneous, some units are used immediately and not stored in inventory. C) Average inventory is less than one-half of the production order quantity. D) All else equal, the smaller the ratio of demand rate to production rate, the larger is the production order quantity. E) None of the above is false.

The assumptions of the production order quantity model are met in a situation where annual demand is 3650 units, setup cost is $50, holding cost is $12 per unit per year, the daily demand rate is 10 and the daily production rate is 100. What is the production order quantity for this problem? A) 139 B) 174 C) 184 D) 365 E) 548

A production order quantity problem has a daily demand rate = 10 and a daily production rate = 50. The production order quantity for this problem is approximately 612 units. What is the average inventory for this problem? A) 61 B) 245 C) 300 D) 306 E) 490

When quantity discounts are allowed, the cost-minimizing order quantity: A) is always an EOQ quantity. B) minimizes the sum of holding and ordering costs. C) minimizes the unit purchase price. D) may be a quantity below that at which one qualifies for that price. E) minimizes the sum of holding, ordering, and product costs.

Which of the following statements about quantity discounts is FALSE? A) The cost-minimizing solution may or may not be where annual holding costs equal annual ordering costs. B) In inventory management, item cost becomes relevant to order quantity decisions when a quantity discount is available. C) If carrying costs are expressed as a percentage of value, EOQ is larger at each lower price in the discount schedule. D) The larger the annual demand, the less attractive a discount schedule will be. E) The smaller the ordering cost, the less attractive a discount schedule will be.

Consider the all-units quantity discount schedule below. Quantity Ordered Price Per Unit EOQ at that Price 1−1999 $100 3652 2000−3999 $90 3849 4000−5999 $80 4082 6000-7999 $70 4364 8000 and over $60 4714 Which of the following sets of order quantities is guaranteed to contain the optimal solution (i.e., best order quantity)? A) {1, 2000, 4000, 6000, 8000} B) {3652, 3849, 4082, 4364, 4714} C) {4082, 6000, 8000} D) {3849, 4082} E) {1999, 3849}