Question

1. In certain case, when the demand might be greater than the stock, then it is difficult to calculate

a. Cost of lost sales

b. Cost of placing an order

c. Cost of setting up a production unit

d. Cost of backorders

.

2. Often to achieve economies of scale while shipping the products, ___________________ type of inventory model is used

a. Placing multiple orders within a planning horizon

b. Waiting up to a pre-established inventory levels

c. P-system

d. Q-System

.

3. Which of the following is not an assumption of EOQ model?

a. Demand is deterministic

b. Replenishment is instantaneous

c. Constant lead times

d. Economies of scale

.

4. Ordering cost will not include

a. Loading and unloading cost

b. Cost of processing RFQ

c. Expense of purchase department

d. Cost of set-up change

.

5. If the demand becomes half and carrying cost increases three time, the EOQ will

a. Increase by 40%

b. Will become half

c. Decrease by 40%

d. Will become double

6. Activity based costing is easy to calculate in a

a. Fixed layout

b. Job shop layout

c. Product layout

d. Process layout

.

Answer 1

Answer 1: a. Cost of lost sales

Reason:

Lost sales happens when a buyer wants to buy a product and it is not available at that time because of shortage then buyer is forced to change its buying behaviour. This alteration might cause buyer to purchase the product later time or not brought at all in the future. This kind of loss can not be costed by the organization as it is purely based on consumer behavior after that moment.

Answer 2: d. Q-System

Reason:

In Q system model, whenever the inventory level reaches to a certain level, the order is placed. This can also be called as continuous review system, where the inventory levels are regularly monitored. The order gets triggered when inventory level reaches to a certain level which is called as reorder point.

The order quantity remains fixed and it all depends on the ordering cost and the carrying cost. Also, reorder point is dependent on the lead time for replenishment and rate of demand.

This model esures the optimization in ordering cost while balancing the inventory levels hence achieves economies of scale during shipping the products.

Answer 3: d. Economies of scale

Below are the assumptions of EOQ Model:

1. Known and constant Demand

2. Known and constant Lead Time

3. Instanteneous receipt of material (i.e. replenishment)

4. No Quantity discounts

5. No stockouts

6. Only order cost and holding cost applicable.

Thus, Economies of scale doesn't belong to assumptions of EOQ model.

Answer 4: a. Loading and unloading cost

Reason: Rest all options are included in ordering cost while option (a) belongs to carrying/ holding cost.

Answer 5: c. Decrease by 40%

Reason:

Formula for EOQ is,

EOQ = sqrt(2*D*S / H)

Where,

D = Annual Demand

S= Per unit cost

H = Carrying/holding cost

EOQ(old) = sqrt[2*D*S / H]

EOQ(new) = sqrt[2*(0.5D)*S / (3*H)] ...........{Demand is halved and carrying cost is 3 times}

EOQ(new) = 0.4068 * sqrt[(2*D*S / H)].........{On simplifying}

EOQ(new) = 0.4068 EOQ(old)

Thus we can say that, EOQ will decrease by approx 40% due to given condition.

Answer 6: c. Product layout

Reason:

Activity based costing involves costing based on number of activities during a task or an operation. So it is always easy to calculate when less activities i.e. movements are done in order to produce final product.

In Product layout of plant, all the equipments and machines are arranged according to sequnce of operation to be performed to produce final product so that there will be less movement of materials and resources.

Thus we can say Activity based costing will be easier to calculate when there is product layout set in the plant.