Daily usage is exactly 60 gallons per day. Lead time is normally distributed with a mean of 10 days and a
standard deviation of 2 days. What is the standard deviation of demand during lead time?
A. 60 x 2
B. 60 times the square root of 2
C. 60 times the square root of 10
D. 60 x 10
E. none of the above
92. Lead time is exactly 20 days long. Daily demand is normally distributed with a mean of 10 gallons per day and
a standard deviation of 2 gallons. What is the standard deviation of demand during lead time?
A. 20 x 2
B. 20 x 10
C. 2 times the square root of 20
D. 2 times the square root of 10E. none of the above
93. All of the following are possible reasons for using the ?xed order interval model except:
A. Supplier policy encourages use.
B. Grouping orders can save in shipping costs.
C. The required safety stock is lower than with an EOQ/ROP model.
D. It is suited to periodic checks of inventory levels rather than continuous monitoring.
E. Continuous monitoring is not practical.
94. Which of these products would be most apt to involve the use of a single-period model?
A. gold coins
C. fresh ?sh
E. frozen corn
95. In a single-period model, if shortage and excess costs are equal, then the optimum service level is:
E. none of these
96. In a single-period model, if shortage cost is four times excess cost, then the optimum service level is ___
97. In the single-period model, if excess cost is double shortage cost, the approximate stockout risk, assuming an
optimum service level, is ___ percent.
98. If, in a single-period inventory situation, the probabilities of demand being 1, 2, 3, or 4 units are .3, .3, .2, and .
2, respectively. If two units are stocked, what is the probability of selling both of them?
D. .8E. none of these
99. The management of supply chain inventories focuses on:
A. internal inventories
B. external inventories
C. both internal and external inventories
D. safety stock elimination
E. optimizing reorder points
100. An operations strategy for inventory management should work towards:
A. increasing lot sizes
B. decreasing lot sizes
C. increasing safety stocks
D. decreasing service levels
E. increasing order quantities
101. Cycle stock inventory is intended to deal with ________.
A. excess costs
B. shortage costs
D. expected demand
E. quantity discounts
102. An operations strategy which recognizes high carrying costs and reduces ordering costs will result in:
A. unchanged order quantities
B. slightly decreased order quantities
C. greatly decreased order quantities
D. slightly increased order quantities
E. greatly increased order quantities
103. The need for safety stocks can be reduced by an operations strategy which:
A. increases lead time
B. increases lead time variability
C. increases lot sizes
D. decreases ordering costs
E. decreases lead time variability
104. If average demand for an item is 20 units per day, safety stock is 50 units, and lead time is four days, the
ROP will be:
105. With an A-B-C system, an item that had a high demand but a low annual dollar volume would probably be
D. none of these
106. The ?xed order interval model would be most likely to be used for this situation:
A. A company has switched from mass production to lean production.
B. Production is done in batches.
C. Spare parts are ordered when a new machine is purchased.
D. Grouping orders can save shipping costs.
E. none of these
107. Which item would be least likely to be ordered under a ?xed order interval system?
A. textbooks at a college bookstore
B. auto parts at an assembly plant
C. cards at a gift shop
D. canned peas at a supermarket
E. none of these
108. Which one of these would not be a factor in determining the reorder point?
A. the EOQ
B. the lead time
C. the variability of demand
D. the demand or usage rate
E. all are factors
109. A car rental agency uses 96 boxes of staples a year. The boxes cost $4 each. It costs $10 to order staples, and
carrying costs are $0.80 per box on an annual basis.
(A) the order quantity that will minimize the sum of ordering and holding boxes of staples
(B) the annual cost of ordering and carrying the boxes of staples
110. A service garage uses 120 boxes of cleaning cloths a year. The boxes cost $6 each. Ordering cost is $3 and
holding cost is 10 percent of purchase cost per unit on an annual basis.
(A) The economic order quantity
(B) The total cost of carrying the cloths (excluding purchase price)(C) The average inventory
111. A shop that makes candles offers a scented candle, which has a monthly demand of 360 boxes. Candles can
be produced at a rate of 36 boxes per day. The shop operates 20 days a month. Assume that demand is uniform
throughout the month. Setup cost is $60 for a run, and holding cost is $2 per box on a monthly basis.
Determine the following:
(A) the economic run size
(B) the maximum inventory
(C) the number of days in a run
112. Estimated demand for gold-?lled lockets at Sam’s Bargain Jewelry and Housewares is 2,420 lockets a year.
Manager Veronica Winters has indicated that ordering cost is $45, and that the following price schedule applies: 1
to 599 lockets, $.90 each; 600 to 1,199 lockets, $.80 each; and 1,200 or more, $.75 each. What order size will
minimize total cost if carrying cost is $.18 per locket on an annual basis?
113. Suppose that you are the manager of a production department that uses 400 boxes of rivets per year. The
supplier quotes you a price of $8.50 per box for an order size of 199 boxes or less, a price of $8.00 per box for
orders of 200 to 999 boxes, and a price of $7.50 per box for an order of 1,000 or more boxes. You assign a
holding cost of 20 percent of the price to this inventory. What order quantity would you use if the objective is to
minimize total annual costs of holding, purchasing, and ordering? Assume ordering cost is $80/order.
114. The operator of a concession at a downtown location estimates that he will sell 400 bags of circus peanuts
during a month. Carrying costs are 17 percent of unit price and ordering cost is $22. The price schedule for bags
of peanuts is: 1 to 199, $1.00 each; 200 to 499, $.94 each; and 500 or more $.87 each. What order size would be
115. A dry cleaning ?rm uses an average of 20 gallons of cleaning ?uid a day. Usage tends to be normally
distributed with a standard deviation of two gallons per day. Lead time is four days, and the desired service level is
92 percent. What amount of safety stock is appropriate if a ?xed order size of 600 gallons is used?
116. Suppose that usage of cooking oil at Harry’s Fish Fry is normally distributed with an average of 15 gallons/
day and a standard deviation of two gallons/day. Harry has just ?red the manager and taken over operating the
restaurant himself. Harry has asked you to help him decide how to reorder cooking oil in order to achieve a service
level which is seven times the risk of stockout (7/8). Lead time is eight days. Assume that cooking oil can be
ordered as needed.
117. A bakery’s use of corn sweetener is normally distributed with a mean of 80 gallons per day and a standard
deviation of four gallons per day. Lead time for delivery of the corn sweetener is normal with a mean of six days
and a standard deviation of two days. If the manager wants a service level of 99 percent, what reorder point should
118. A manager reorders lubricant when the amount on-hand reaches 422 pounds. Average daily usage is 45
pounds, which is normally distributed with a standard deviation of three pounds per day. Lead time is nine days.
What is the risk of a stockout?
119. Given the following information:Order quantity = 300; = 20 units; desired lead time service level = .86.
(A) the expected number of units short per cycle
(B) the annual service level
120. A company can produce a part it uses in an assembly operation at the rate of 50 an hour. The company
operates eight hours a day, 300 days a year. Daily usage of the part is 300 parts. The company uses the part every
day. The run size is 6,000 parts. The annual holding cost is $2 per unit, and setup cost is $100.
(A) How many runs per year will there be?
(B) While production is occurring, how many parts per day are being added to inventory?
(C) Assuming that production begins when there are no parts on hand, what is the maximum number of parts in
(D) The machine is dedicated to this product. Every so often, preventive maintenance, which requires six working
days, must be performed on it. Does this interrupt production cycles, or is there enough time between cycles to
perform the maintenance? Explain.