4) As an inventory manager, you must decide on the order quantity for an item. Its annual demand is 350
units. Ordering cost is $20 each time an order is placed, and the holding cost is 30 percent of the per-unit
price. Your supplier provided the following price schedule.
Price per Unit
Order Quantity
$4.00
000 – 199
$3.75
200 – 399
$3.50
400 and more
What is the annual cost discrepancy between the optimal order policy and the second best order policy?
A) Less than $5
B) Between $5 and $10
C) Between $10 and $20
D) More than $20
5) When faced with a quantity discount situation, the first EOQ should be calculated using the ________
price.
6) Why are there discontinuities (areas where the curve jumps up or down and is not smooth) in the total
cost curve in the quantity discount model?
7) As an inventory manager, you must decide on the order quantity for an item. Its annual demand is
1,000 units. Ordering costs are $50 each time an order is placed, and the holding cost is 25 percent of the
per-unit price. Your supplier provided the following price schedule.
Quantity
Price per Unit
1 – 199
$10.00
200 – 499
$ 9.80
500 or more
$ 9.60
What ordering-quantity policy do you recommend?
8) As an inventory manager, you must decide on the order quantity for an item. Its annual demand is 679
units. Ordering costs are $7 each time an order is placed, and the holding cost is 10% of the unit cost.
Your supplier provided the following price schedule.
Quantity
Price per Unit
1 – 100
$5.65
101 – 350
$4.95
351 or more
$4.55
What ordering-quantity policy do you recommend?
1) If demand exceeds the order quantity in a single period situation, then the payoff is simply the order
quantity times the per unit profit.
2) In a one-period inventory model, the after-season sales price may be zero.
3) In a one-period inventory model, the higher the after-season sales price, the higher the order placed at
the start of the season.
4) In a one-period inventory model, the more profitable the item during the sales season, the manager
should place a higher order at the start of the season.
5) The closer the in-season and after season sales price are, the lower the order placed at the start of the
season.
6) Use of the single-period model will maximize profit in every season.
Scenario C.2
Egan Schranz sells Klammelhoffer skis out of his store in the Alps. The store makes a $75 profit per unit
sold during the ski season, but it will take a $25 loss per unit if sold after the season is over. The following
discrete probability distribution has been estimated for the season’s demand.
Demand (D)
Demand Probability
20
0.1
40
0.2
60
0.3
80
0.3
100
0.1
7) Use the information in Scenario C.2. What is the payoff with an order quantity (Q) of 80 units if the
demand (D) is 60 units?
A) less than or equal to $3,000
B) greater than $3,000 but less than or equal to $4,000
C) greater than $4,000 but less than or equal to $5,000
D) greater than $5,000
8) Use the information in Scenario C.2. What is the best order quantity?
A) 20 units
B) 40 units
C) 60 units
D) 80 units
Scenario C.3
Consider an item with the following discrete demand distribution for a one-period inventory decision.
Demand (D)
Demand Probability
10
0.15
20
0.20
30
0.30
40
0.20
50
0.15
This item experiences a seasonal demand pattern. A profit of $15 per unit is made if the item is sold in
season, but a loss of $10 per unit is incurred if the item is sold after the season is over.
9) Use the information in Scenario C.3. What is the payoff when 40 units are ordered but a demand of 50
materializes?
A) $150
B) $300
C) $450
D) $600
10) Use the information in Scenario C.3. What is the payoff when 40 units are ordered but a demand of 30
materializes?
A) $0
B) $100
C) $350
D) $450
11) Use the information in Scenario C.3. What is the order quantity with the highest expected payoff?
A) 20 units
B) 30 units
C) 40 units
D) 50 units
12) A world traveler prepares to leave the comforts of home for a back to nature visit to Gilligan‘s Island,
where all transactions are conducted in coconuts and the banking system is completely undeveloped. The
traveler can buy coconuts for $2 each before the journey. If he fails to bring enough coconuts with him
and runs out, he must get some coconuts flown in at a cost of $5 each. If he finishes his vacation and has
leftover coconuts he can cash them in when he returns home, but will receive only $1.50 per coconut.
What is his loss per unit if he overstocks on coconuts prior to leaving home?
A) $0.50
B) $1
C) $3.50
D) $4.50
13) Which of these statements about the one-period model is best?
A) Purchasing a quantity with the highest expected payoff will result in a positive payoff regardless of
the actual demand during the period.
B) The loss per unit cannot exceed the profit per unit.
C) If demand exceeds the purchased quantity then the actual payoff exceeds the expected payoff for that
quantity.
D) The expected payoff for a purchase quantity is always less than the actual payoff for that quantity.
14) The need for one-time inventory decisions also can arise in manufacturing plants when ________
items are made to a single order and ________ are high.
15) In a single period model, if purchase quantity Q exceeds demand rate D, then the number of units
sold after the season is ________.
16) In a single period model, if the in-season demand is unexpectedly high, then the profit can be
calculated as ________.
17) When do one-period decisions on inventory arise in practice?
18) Pick any three products that occupy both extremes and the midpoint of the one-period model
continuum. Explain why the products occupy these positions and identify the ideal inventory model for
determining the best order quantity or each.
20
19) Explain why in any given season, the one-period decision model may result in a poor choice for a
stocking level?
Answer: The one-period inventory models are appropriate when decision makers handle seasonal goods
that must be sold at a reduced price after the selling season. The model is based on expected values, i.e.,
21
20) A newsstand is trying to determine how many bundles of newspapers to stock. For each bundle, the
newsstand makes $20. However, they lose $5 per bundle if they do not sell. The following discrete
probability distribution has been estimated for their daily demand. How many bundles should they
stock?
Demand
(bundles)
Probability
4
.10
5
.20
6
.30
7
.30
8
.10
Answer: