materials management
In determining the economic order quantity (EOQ), the following costs are considered:
ordering costs and inventory carrying costs.
In the simple EOQ model, annual inventory carrying costs and annual ordering costs vary:
with the order quantity.
Which of the following is NOT an assumption on which the economic order quantity (EOQ) is based?
The item is produced continuously.
While working a simple EOQ problem, you notice that, with a certain lot size, the
annual ordering cost is exactly the same value as the annual inventory carrying cost. Which of the following is true?
The lot size is the economic order quantity.
If the order quantity is increased, the annual cost of carrying inventory will:
increase.
6) A firm uses $20,000 of an item per year. The carrying cost is 25%, the cost of
ordering is $10 and the order quantity is $1,000. The annual total cost of carrying plus ordering would be:
$816.
7) For a particular item the usage is 2000 units per year, the ordering cost is $10, the
inventory carrying cost is 20% and the unit cost is $5. The economic order quantity is:
200 units.
8) The period order quantity is equal to:
OQ divided by average period demand.
9) Using the POQ method of ordering, calculate the total cost of carrying and ordering inventory for the 6 week period
shown. Use a POQ = 3 weeks for your answer.
Week 1 2 3 4 5 6
Ending inventory 60 40 10 50 20 30
$340
10) Which of the following are basic systems for determining when to order INDEPENDENT demand items?
I. Order point system
II. Periodic review system
III. Material Requirements Planning
I and II only
11) Which of the following statements is true?
A and B are true
12) Select the description which most closely fits the term LEAD TIME.
the time it takes to replenish an item in inventory
13) When using the order point system, which of the following is true?
A and B are true.
14) Among other things, the amount of safety stock carried will depend upon:
all of the above
15) A product has a standard deviation of demand of 15. The safety stock for a service level of 98% would be approximately:
31
16) A company that keeps no safety stock can expect an average service level of:
50%.
17) Management is willing to tolerate one stockout every 2 years for a specific item. If
10 orders are placed for the item each year the service level desired is:
95%.
18) Using the periodic review system the target level is:
the sum of A and B plus the safety stock.
If the lead time is 1 week, the review period 4 weeks, the average demand 100
units per week and the safety stock is 50 units, the target level will be:
550 units.