Question

q1 The continuous review economic order quantity (EOQ) inventory model operates using two model parameters. These two parameters are:

Select one:

a.

Q, which represents a fixed order quantity and R, which represents a variable reorder point quantity of inventory.

b.

Q, which represents a variable order quantity and R, which represents a fixed reorder point quantity of inventory.

c.

Q, which serves as the amount of inventory that triggers the release of an order and R, which is the reorder quantity.

d.

Q, which represents a variable order quantity and R, which represents a variable reorder point quantity of inventory.

e.

Q, which represents a fixed order quantity and R, which represents a fixed reorder point quantity of inventory.

q2 The periodic review inventory model operates using two model parameters, TI (target inventory) and RP (review period). These two parameters are:

Select one:

a.

TI, which represents a variable quantity of units one would order up to and RP, which represents a fixed amount of time between orders.

b.

TI, which represents a fixed order quantity and RP, which represents a variable reorder point quantity of inventory.

c.

TI, which represents a fixed quantity of units one would order up to and RP, which represents a fixed amount of time between orders.

d.

TI, which represents a variable order quantity and RP, which represents a variable reorder point quantity of inventory.

e.

TI, which represents a fixed quantity of units one would order up to and RP, which represents a variable amount of time between orders.

q3 Assume expected demand during lead time averages 30 units with the standard deviation of demand during lead time being 10 units. What reorder point will provide a service level of 90% (or a stock out risk of 10%) during lead time while utilizing a continuous review inventory model? Use of a z-table is necessary to answer this question.

Select one:

a.

42.80 units

b.

46.40 units

c.

None of these

d.

39.00 units

e.

46.50 units

q4

What is the optimal order quantity while using a fixed-order-quantity (EOQ) inventory model if annual demand for a product is 5,000 units, order cost is $10, purchase price is $5, and annual carrying cost is $0.50 per unit?

Select one:

a.

141.42 units

b.

None of these

c.

447.21 units

d.

5,000 units

e.

200,000 units

Answer 1

1. Answer: E (Q, which represents a fixed order quantity and R, which represents a fixed reorder point quantity of inventory)

Rationale: The Quantity, Q depends on the holding cost per unit, ordering cost and annual demand which are assumed to be constant. Therefore, Q remains constant. Similarly, Re-order point depends on daily demand and the lead time which are also assumed to be constant. Therefore, both Re-order point is also constant.

2. Answer: C (TI, which represents a fixed quantity of units one would order upto and RP, which represents a fixed amount of time between orders)

Rationale:

Target Inventory (TI) = Order Quantity + On-hand Inventory

As the on-hand Inventory varies, the amount of quantity to be ordered also varies but the target Inventory remains constant stating that yhr total Inventory must be equal to the target Inventory. Example, If a company has order upto level of 2600 units, then if on-hand Inventory is 1500 units, we must order quantity of 1100 units. And if on-hand Inventory is 1000 units, we must order quantity of 1600 units.

This system is also known as fixed time period system because the Inventory is reviewed after a fixed period (RP)

3. Answer: A (42.80 units)

Rationale:

Expected demand during lead time (d) = 30 units

Standard deviation during lead time (S) = 10 units

Given service level = 90%

Value of Z corresponding of 90% service level is 1.28.

Re-order point = d + (Z × S)

Re-order point = 30 + (10 × 1.28)

Re-order point = 42.8 units

4. Answer: C (447.21 units)

Rationale:

Annual Demand (D) = 5000 units

Ordering cost per order (S) = $ 10

Annual carrying cost (H) = $ 0.50

EOQ = 447.21 Units