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65) Consider the material structure tree for item A below. If 20 units of A are needed, how many units of D are
needed?
A) 11
B) 30
C) 160
D) 60
E) 220
66) Consider the material structure tree for item A below. If 10 units of A are needed, how many units of E are
needed?
A) 60
B) 6
C) 240
D) 24
E) 480
67) Extra inventory that is used to avoid stockouts is known as
A) planned shortages.
B) quantity discounts.
C) safety stock.
D) service level.
E) ABC analysis.
68) An inventory model that can handle dependent demand is called a(n)
A) MRP system.
B) JIT system.
C) ERP system.
D) Kanban system.
E) VMI system.
69) As the service level increases,
A) safety stock increases at a decreasing rate.
B) safety stock increases at an increasing rate.
C) safety stock decreases at an increasing rate.
D) safety stock decreases at a decreasing rate.
E) None of the above
70) A person is using the normal distribution to determine the safety stock for a product. What z value would be
associated with a 90 percent service level?
A) 0.90
B) 1.28
C) 0.53
D) 0.90
E) None of the above
71) The demand during the lead-time is normally distributed with a mean of 40 and a standard deviation of 4. If
the company wishes to maintain a 90 percent service level, how much safety stock should be held?
A) 45.12
B) 41.28
C) 1.28
D) 5.12
E) None of the above
72) The annual demand for a product is 1,000 units. The company orders 200 units each time an order is placed.
The lead-time is 6 days. There are 250 working days per year. If the reorder point is 50, what safety stock are
they using?
A) 22
B) 4
C) 26
D) 28
E) None of the above
73) The annual demand for a product has been projected at 2,000 units. This demand is assumed to be constant
throughout the year. The ordering cost is $20 per order, and the holding cost is 20 percent of the purchase cost.
The purchase cost is $40 per unit. There are 250 working days per year. Whenever an order is placed, it is known
that the entire order will arrive on a truck in 6 days. Currently, the company is ordering 500 units each time an
order is placed. What level of safety stock would give a reorder point of 60 units?
A) 10
B) 14
C) 18
D) 12
E) 22
74) A person is using the normal distribution to determine the safety stock for a product. The Z value of 1.65
would be associated with what service level?
A) 90 percent
B) 95 percent
C) 100 percent
D) 92.5 percent
E) None of the above
75) A person is using the normal distribution to determine the safety stock for a product. The Z value of 2.33
would be associated with what service level?
A) 95 percent
B) 97.5 percent
C) 98 percent
D) 99 percent
E) None of the above
76) Rolf Steps is the production manager for a local manufacturing firm. This company produces staplers and
other items. The annual demand for a particular stapler is 1,600 units. The holding cost is $2 per unit per year.
The cost of setting up the production line is $25. There are 200 working days per year. The production rate for
this product is 80 per day. If Rolf decided to produce 200 units each time he started production of the stapler,
what would his maximum inventory level be?
A) 200
B) 180
C) 100
D) 90
E) None of the above
77) In the ABC analysis of inventory, the A group items
A) are critical to the functioning of the organization.
B) are the most expensive class of items.
C) typically account for over 70 percent of the company's business in dollars.
D) typically account for about 10 percent of a company's inventory items.
E) All of the above
78) Which of the following statements concerning ABC analysis is false?
A) Class B items typically account for 20 percent of the company's business in dollars.
B) There are typically less class A items in stock than class B.
C) Class C items typically account for 70 percent of the company's inventory items.
D) Class C items tend to have more complex inventory policies than Class B items.
E) Class B items typically account for 20 percent of the company's business in dollars.
79) With an annual demand of 2,400 units, daily demand of 10 units, and daily production rate of 40 units, a
company has determined that each production run will be for 200 units. If production starts when the inventory
level is at zero, how many units would actually be in the warehouse at the end of the first day of production?
(Round your answer to the nearest unit.)
A) 12
B) 20
C) 30
D) 40
E) None of the above
80) Jack Spratt is the production manager for a manufacturing firm that produces wizzy-gadgets and other items.
The annual demand for a particular wizzy-gadget is 1,600 units. The holding cost is $2 per unit per year. The
cost of setting up the production line is $25. There are 200 working days per year. The production rate for this
product is 80 per day. If his maximum inventory level is 180 units, how many units did he produce each time he
started production of the wizzy-gadgets?
A) 200
B) 180
C) 100
D) 90
E) None of the above
81) Rose Arena is the production manager for a manufacturing firm that produces buggy whips and other items.
The annual demand for a particular buggy whip is 1,600 units. The holding cost is $2 per unit per year. The cost
of setting up the production line is $25. There are 200 working days per year. Rose decided to produce 200 units
each time she started production of the buggy whips. If it took her 4 days to produce the 200 units, what was her
production rate?
A) 80 units/day
B) 60 units/day
C) 50 units/day
D) 100 units/day
E) 40 units/day
82) An organization hosting a 5K race is looking to sell t-shirts at the event. Demand for t-shirts is believed to be
normally distributed with a mean of 100 and standard deviation of 15. With a marginal loss of $4 and marginal
profit of $5, how many t-shirts should the organization stock for the 5K race?
A) 98
B) 85
C) 103
D) 115
E) 113
21
83) A bakery must decide how many loaves of fresh bread to produce in a single day. Daily demand for fresh
bread is normally distributed with a mean of 70 loaves and standard deviation of 18. If the marginal loss is $2 and
the marginal profit is $1, how much bread should the bakery produce in a single day?
A) 88
B) 52
C) 63
D) 78
E) 70
84) Which of the following statements about the kanban system is false?
A) Kanban in Japanese means "card."
B) In a dual card system, there is the C-kanban and P-kanban.
C) More than two containers can be used.
D) The kanban system is most commonly executed manually.
E) One typical kanban rule is that no containers are filled without the appropriate C-kanban.
85) East Valve Distributors distributes industrial valves and control devices. The Eastern control device has an
annual demand of 9,375 units and sells for $100 per unit. The cost of ordering is $160 per order and the average
carrying cost per unit per year is $0.75. Determine the economic order quantity.
86) A company annually uses 1,200 of a certain spare part that costs $25 for each order and has a $24 annual
holding cost. Calculate the total annual cost for order sizes of: 25, 40, 50, 60, and 100. Identify the economic order
quantity, and consider the implications for making an error in calculating the economic order quantity.
87) David and Beth Sheba run a health food store. Their top selling item is called Heavenly Kelp. The annual
demand for this is 810 units, and demand is constant throughout the year. The cost of placing an order is $20,
while the holding cost per unit per year is $4.
(a) How many orders per year should be placed if they wish to minimize their total cost?
(b) What is the minimum possible annual holding and ordering cost?
88) Everett Mann's Dream Store sells waterbeds and supplies. The best selling bed in the store has an annual
demand of 400 units. The ordering cost is $40, while the holding cost is $5 per unit per year. There are 250
working days per year, and the lead-time is 6 days.
(a) To minimize total cost, how many units should be ordered each time an order is placed?
(b) If the holding cost per unit was $6 instead of $5, what would the optimal order quantity be?
89) Ivonne Callen sells beauty supplies. Her annual demand for a particular skin lotion is 1,000 units. The cost of
placing an order is $20, while the holding cost per unit per year is 10 percent of the cost. This item currently costs
$10 if the order quantity is less than 300. For orders of 300 units or more, the cost falls to $9.80. To minimize total
cost, how many units should Ivonne order each time she places an order? What is the minimum total cost?
90) Suppose that lead-time demand is normally distributed with a mean of 100 units and a standard deviation of
20 units. If a firm wants to maintain a 97% service level, what should the reorder point be?
91) ArtOrgan, Ltd. distributes mechanical replacements for human mitral heart valves. Its artificial valve has a
demand of 12,765 units per year and sells for $7,900 per unit. The cost of ordering is $75 per order and the
average carrying cost per unit per year is $150. Determine the economic order quantity.
92) Furniture Manufacturers Inc., uses 20,000 loads of lumber per year. A load of lumber costs $500 and the
carrying cost is 10 percent of the unit cost. The cost to order is $200 per order and the lead-time is three working
days. Assuming 200 working days, determine:
(a) the economic order quantity.
(b) the reorder point.
(c) number of orders per year.
(d) working days between orders.
93) A company uses 1,500 per year of a certain subassembly that has an annual holding cost of $45 per unit. Each
order placed costs $150. The company operates 300 days per year and it has found that an order must be placed
with the supplier 6 working days before it can expect to receive that order. For this subassembly, find:
(a) the economic order quantity.
(b) the annual holding cost.
(c) the annual ordering cost.
(d) the reorder point.
94) The H.A.L. Computer Store sells a printer for $200. Demand for this is constant during the year, and annual
demand is forecasted to be 600 units. The holding cost is $20 per unit per year, while the cost of ordering is $60
per order. Currently, the company is ordering 12 times per year (50 units each time). There are 250 working days
per year and the lead-time is 10 days.
(a) Given the current policy of ordering 50 units at a time, what is the total of the annual ordering cost and
the annual holding cost?
(b) If the company used the absolute best inventory policy, what would the total of the ordering and holding
cost be?
(c) What is the reorder point?
95) Purinnerds Dog Food is a very popular product at Kay Gnein's corner grocery. Demand for this is relatively
constant, and the total demand for the year is 1,200 bags. The cost of placing an order is $50, while the holding
cost is $3 per unit per year. The store is open 300 days per year. Lead-time for this is 8 days.
(a) If Kay places 50 orders per year, what would her annual ordering and holding costs be?
(b) If Kay wishes to minimize her total inventory cost, how many units should she order each time an order
is placed?
(c) What is the reorder point?
96) A company uses 2,750 per year of a certain subassembly that has a purchase cost of $450, and an annual
holding cost of $500 per unit. Each order placed costs $150. The company operates 300 days per year and it has
found that an order must be placed with the supplier 12 working days before it can expect to receive that order.
For this subassembly, find:
(a) the economic order quantity.
(b) the reorder point.
97) The H.A.L. Computer Store sells a printer for $400. Demand for this is constant during the year, and annual
demand is forecasted to be 1350 units. The holding cost is $20 per unit per year, while the cost of ordering is $90
per order. Currently, the company is ordering 12 times per year (92 units each time). There are 270 working days
per year and the lead-time is 8 days. What should be the reorder point?
98) The Handy Manufacturing Company manufactures small air conditioner compressors. The estimated
demand for the year is 12,000 units. The setup cost for the production process is $200 per run, and the carrying
cost is $10.00 per unit per year. The daily production rate is 100 units per day, and demand has been 50 units per
day. Determine the number of units to produce in each batch. (The problem assumes 240 operating days.)
99) Anne Beck recently took over a beauty supply store. Her predecessor always ordered shampoo in quantities
of 100 units. Anne is reevaluating this policy. Based on her analysis, the cost to place each order is $35 and the
holding cost is $8 per shampoo bottle per year. The annual demand for this product is 2500 bottles. Should Anne
change the current order policy and, if so, how much can she save?
100) Candy Incorporated stocks bubble gum game cards, an item that has a normally distributed demand during
the reorder period with a mean of 12 dozen boxes and a standard deviation of two dozen boxes. If it is desirable
to experience a stockout only 10 percent of the time, what is the appropriate safety stock?
101) The purchasing manager for a firm is trying to determine what the safety stock should be for a particular
product. She has developed the following table, which gives the distribution of demand during the lead-time and
the probabilities:
Demand During
Lead-Time
Probability
40
0.20
50
0.25
60
0.25
70
0.20
80
0.10
The carrying cost is $5 per unit per year, the ordering cost is $30 per order, and the stockout cost is $40 per unit.
The reorder point is 60 units, and 6 orders are placed each year. What level of safety stock should be maintained?
102) A professional baseball organization chooses to sell game day programs. Demand for game day programs is
normally distributed with a mean of 2,000 and standard deviation of 300. If the marginal loss is $1 and the
marginal profit is $3, how many programs should the baseball organization print?
103) Demand for local newspapers in King County during weekdays is normally distributed with a mean of 500
and standard deviation of 100. The marginal loss per paper is $0.10 and marginal profit is $0.40. How many
newspapers should the local publisher produce each day?
104) Consider the material structure tree for item A below. Assume 15 units of A are needed.
(a) How many units of B are needed?
(b) How many units of C are needed?
(c) How many units of D are needed?
(d) How many units of E are needed?
105) Explain the purpose of ABC analysis.
106) List three general categories of inventory.
107) Explain how inventory can act as a buffer in the production process.
108) List several disadvantages of buying inventory in large quantities.
109) List four significant inventory costs.
110) List major carrying cost factors.
111) List major ordering cost factors.
112) Explain the basic difference(s) between the simple EOQ model and the production run model.
113) Discuss why it is sometimes prudent not to order the minimum level required to obtain a quantity discount.
