Question

1) Assuming no safety stock, what is the re-order point (R) given an average daily demand of 50 units, a lead time of 10 days and 625 units on hand?

1. 550
2. 500
3. 715
4. 450
5. 475

2) 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?

1. 576
2. 240
3. 120.4
4. 60.56
5. 56.03

3) Using the economic 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?

1. $849
2. $1,200
3. $1,889
4. $2,267
5. $2,400

4) The Franklin County Hospital is currently using a continuous review system to control its inventory. One of the items in inventory is an elastic band. The average demand for this item is 200 boxes per week, and the standard deviation in weekly demand is 50 boxes. If the lead time is 3 weeks and the hospital wants a 95 percent cycle-service level, what is the reorder point for this item?

1. Less than 650 boxes
2. Greater than 650 boxes but less than 750 boxes
3. Greater than 750 boxes but less than 850 boxes
4. Greater than 850 boxes

Answer 1

(1)

Assuming no safety stock, Reorder point = dL

where,

where d = average daily demand = 50

L = Lead Time = 10 days

=> Reorder Point = 50*10 = 500

Hence, Reorder Point is (B) 500

(2)

Economic Order Quantity = EOQ = √(2C_oD/C_c)

Where, Co is the cost of placing one order = $6

D - annual demand = 12000

Cc - annual per-unit holding cost = 2.50

=> EOQ = √(2*6*12000/2.50) = 240

Hence, Optimal Ordering Cost is (B) 240

(3)

Annual Demand = D = 36000/year

Ordering Cost = C_o = $80

Holding Cost = C_c = $4/year

Economic Order Quantity Q* = √(2DC_o/C_c) = √(2*36000*80/4) = 1200

Annual Order cost = Number of orders * cost/order = (D/Q*) C_o = (36000/1200)*80 = $2400

Hence, Total Ordering Cost is (E) 2400

(4)

Reorder point = dL + zσ_d√L

where d = average weekly demand = 200

L = average lead time = 3 weeks

z = number of standard deviations based on service level 99% = 1.645

σ_d = standard deviation of weekly demand = 50

Reorder Point = 200*3 + 1.645*50√3 = 742.46

Hence, the reorder point is (B) Greater than 650 boxes but less than 750 boxes