Inventory Management Problems

Mark Achin sells 3,600 electric motors each year.  The cost of these is $200 each, and demand is constant throughout the year.  The cost of placing an order is $40, while the holding cost is $20 per unit per year.  There are 360 working days per year and the lead-time is 5 days.  If Mark orders 200 units each time he places an order, what would his total ordering cost be for the year?

• $2,000

• $2,720

• $200

• $720

• Answer not given

Answer explanation

(3,600/200) x 40=720

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.  Currently, the company is ordering 500 units each time an order is placed.  Assuming the company uses a safety stock of 20 units resulting in a reorder point of 60 units, what is the expected lead-time for delivery?

• 4 days

• 5 days

• 6 days

• 7 days

Answer explanation

2,000/250 days = 8 per day

60 - 20 = 40

40/8 = Days

R.C. Barker makes purchasing decisions for his company.  One product that he buys costs $50 per unit when the order quantity is less than 500.  When the quantity ordered is 500 or more, the price per unit drops to $48.  The ordering cost is $30 per order and the annual demand is 7,500 units.  The holding cost is 10 percent of the purchase cost.  If R.C. orders 500 units each time he places an order, what would the total annual holding cost be?

• $450

• $1,200

• $1,250

• $2,400

Answer explanation

48(10%) x (500/2) = 1,200

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.  Currently, 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 is the total holding cost for the year using this policy?

• $400

• $2,000

• $4,000

• $8,000

Answer explanation

40(20%) x (500/2) = 2,000

Mark Achin sells 3,600 electric motors each year.  The cost of these is $200 each, and demand is constant throughout the year.  The cost of placing an order is $40, while the holding cost is $20 per unit per year.  There are 360 working days per year and the lead-time is 5 days.  If Mark orders 200 units each time he places an order, what would his average inventory be (in units)?

• 100

• 200

• 60

• 120

Answer explanation

200/2 = 100

Andre Candess manages an office supply store.  One product in the store is computer paper.  Andre knows that 10,000 boxes will be sold this year at a constant rate throughout the year.  There are 250 working days per year and the lead-time is 3 days.  The cost of placing an order is $30, while the holding cost is $15 per box per year.  How many units should Andre order each time?

• 200

• 400

• 500

• 100

Judith Thompson is the manager of the student center cafeteria.  She is introducing pizza as a menu item.  The pizza is ordered frozen from a local pizza establishment and baked at the cafeteria.  Judith anticipates a weekly demand of 10 pizzas.  The cafeteria is open 45 weeks a

year, 5 days a week.  The ordering cost is $15 and the holding cost is $0.40 per pizza per year. What is the optimal number of pizzas Judith should order?

• 184 pizzas

• 9 pizzas

• 5 pizzas

• 28 pizzas

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, and the company has determined that 20 units should be held as a safety stock.  There are 250 working days per year.  What is the reorder point?

• 20

• 24

• 44

• 120

Answer explanation

1000/250 = 4 units

4 x 6 = 24

24 + 20 = 44 units

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.  Currently, 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 is the reorder point under the current policy?

• 48

• 100

• 6

• 24

Answer explanation

2000/250 = 8

8 x 6 = 48

Andre Candess manages an office supply store.  One product in the store is computer paper.  Andre knows that 10,000 boxes will be sold this year at a constant rate throughout the year.  There are 250 working days per year and the lead-time is 3 days.  The cost of placing an order is $30, while the holding cost is $15 per box per year.   If Andre orders 500 boxes each time he orders from his supplier, what would his total annual inventory cost be (holding cost plus ordering cost)?

• $3,000

• $4,350

• $3,075

• $3,750

Answer explanation

TC = (15)*(500/2) + 30 (10,000/500) = 4,350