121. The injection molding department of a company uses 40 pounds of a powder a day. Inventory is re

121. The injection molding department of a company uses
40 pounds of a powder a day. Inventory is reordered
when the amount on hand is 240 pounds. Lead time averages
?ve days. It is normally distributed and has a
standard deviation of two days. What is the probability of a
stockout during lead time?

122. A shop owner uses a reorder point approach to
restocking a certain raw material. Lead time is six days.
Usage of the material during lead time is normally
distributed with a mean of 42 pounds and a standard deviation
of 4 pounds. When should the raw material be reordered if
the acceptable risk of a stockout is 3%?

123. The manager of a bakery orders three ‘cake-to-go’
wedding cakes every Saturday to accommodate last minute
purchases. Demand for the cakes can be described by a
Poisson distribution that has a mean of 2. The cakes cost
$10 each to prepare, and they sell for $26 each. Any cakes
that haven’t been sold by the end of the day are sold for half price the next
day. Usually, half of those are sold and the rest are tossed. What stocking
level would be
appropriate?

124. A manager has just received a revised price
schedule from a vendor. What order quantity should the manager
use in order to minimize total costs? Annual Demand is 120
units, ordering cost is $8, and annual carrying cost is
$1 per unit.

A manufacturer is contemplating a switch from buying
to producing a certain item. Setup cost would be the same
as ordering cost. The production rate would be about double
the usage rate.

125. Compared to the EOQ, the economic production
quantity would be approximately:
A. the same
B. 20 percent larger
C. 40 percent larger
D. 20 percent smaller
E. 40 percent smaller

126. Compared to the EOQ, the maximum inventory would
be approximately:
A. 70 percent higher
B. 30 percent higher
C. the same
D. 30 percent lower
E. 70 percent lower

The manager of the Quick Stop Corner Convenience Store
(which never closes) sells four cases of Stein beer
each day. Order costs are $8.00 per order, and Stein beer
costs $.80 per six-pack (each case of Stein beer contains
four six-packs). Orders arrive three days from the time they
are placed. Daily holding costs are equal to ?ve
percent of the cost of the beer.

127. At what point should he reorder Stein beer?
A. 0 cases remaining
B. 4 cases remaining
C. 12 cases remainingD. 16 cases remaining
E. 20 cases remaining

128. If he were to order 16 cases of Stein beer at a
time, what would be the length of an order cycle?
A. 0.25 days
B. 3 days
C. 1 day
D. 4 days
E. 20 days

129. If he were to order 16 cases of Stein beer at a
time, what would be the average inventory level?
A. 4 cases
B. 12 cases
C. 8 cases
D. 20 cases
E. 16 cases

130. If he were to order 16 cases of Stein beer at a
time, what would be the daily total inventory costs,
EXCLUDING the cost of the beer?
A. $2.00
B. $4.00
C. $1.28
D. $3.28
E. $2.56

131. What is the economic order quantity for Stein
beer?
A. 8 cases
B. 11 cases
C. 14 cases
D. 20 cases
E. 32 cases

Ann Chovies, owner of the Perfect Pasta Pizza Parlor,
uses 20 pounds of pepperoni each day in preparing pizzas.
Order costs for pepperoni are $10.00 per order, and carrying
costs are 4 cents per pound per day. Lead time for
each order is 3 days, and the pepperoni itself costs $3.00
per pound.

132. At what point should she reorder pepperoni?
A. 20 pounds remaining
B. 40 pounds remaining
C. 60 pounds remaining
D. 80 pounds remaining
E. 100 pounds remaining
133. If she were to order 80 pounds of pepperoni
at a time, what would be the length of an order cycle?
A. 0 days
B. 0.25 days
C. 3 days
D. 4 days
E. 5 days

134. If she were to order 80 pounds of pepperoni at a
time, what would be the average inventory level?
A. 20 pounds
B. 40 pounds
C. 60 pounds
D. 80 pounds
E. 100 pounds

135. If she were to order 80 pounds of pepperoni at a
time, what would be the total daily costs, including the cost
of the pepperoni?
A. $60.00
B. $63.20
C. $64.00
D. $64.10
E. $65.00

136. What is the economic order quantity for
pepperoni?
A. 20 pounds
B. 40 pounds
C. 60 pounds
D. 80 pounds
E. 100 pounds

The Operations Manager for Shadyside Savings &
Loan orders cash from her home of?ce for her very popular
“BIG BUCKS” automated teller machine, which only
dispenses $100 bills. She estimates that this machine
dispenses an average of 12,500 bills per month, and that
carrying a bill in inventory costs 10 percent of its value
annually. She knows that each order for these bills costs
$300 for clerical and armored car delivery costs, and that
order lead time is six days.

137. Assuming a thirty-day month, at what point should
bills be reordered?
A. 0 bills remaining
B. 417 bills remaining
C. 2,500 bills remaining
D. 10,000 bills remaining
E. 12,500 bills remaining

138. Assuming a thirty-day month, if she were to order
6,000 bills at a time, what would be the length of an order
cycle? A. 0.48 days
B. 2.08 days
C. 6 days
D. 8.4 days
E. 14.4 days

139. If she were to order 6,000 bills at a time, what
would be the dollar value of the average inventory level?
A. $3,000
B. $6,000
C. $12,500
D. $300,000
E. $600,000

140. If she were to order 6,000 bills at a time, what
would be the average monthly total costs, EXCLUDING the
value of the bills?
A. $625
B. $1,250
C. $2,500
D. $3,125
E. $37,500

141. What is the economic order quantity?
A. 600 bills
B. 3,000 bills
C. 949 bills
D. 6,215 bills
E. 12,500 bills

Given the following data for a particular inventory
item:

142. What is the economic order quantity for this
item?

143. For the economic order quantity, what is the
length of an order cycle?

144. For the economic order quantity, what is the
reorder point?

145. For the economic order quantity, what is the
average inventory level?

146. For the economic order quantity, what are average
weekly ordering costs?

147. For the economic order quantity, what are average
weekly carrying costs?

148. For the economic order quantity, what are average
weekly total costs, including the cost of the inventory
item?

The materials manager for a billiard ball maker must
periodically place orders for resin, one of the raw materials
used in producing billiard balls. She knows that
manufacturing uses resin at a rate of 50 kilograms each day, and
that it costs $.04 per day to carry a kilogram of resin in
inventory. She also knows that the order costs for resin are
$100 per order, and that the lead time for delivery is four
(4) days.
149. At what point should resin be reordered?
A. 0 kilograms remaining
B. 50 kilograms remaining
C. 200 kilograms remaining
D. 400 kilograms remaining
E. 500 kilograms remaining

150. If order size was 1,000 kilograms of resin, what
would be the length of an order cycle?
A. 0.05 days
B. 4 days
C. 16 days
D. 20 days
E. 50 days

151. If the order size was 1,000 kilograms of resin,
what would be the average inventory level?
A. 50 kilograms
B. 200 kilograms
C. 500 kilograms
D. 800 kilograms
E. 1,000 kilograms

152. If the order size was 1,000 kilograms of resin,
what would be the daily total inventory costs, EXCLUDING
the cost of the resin?
A. $5
B. $10
C. $20
D. $25
E. $40

153. What is the economic order quantity for
resin?
A. 50 kilograms
B. 100 kilograms
C. 250 kilograms
D. 500 kilograms
E. 1,000 kilograms154. A ?rm stocks a seasonal item that it buys for
$22/unit and sells for $29 unit. During the season, daily demand can be described using a Poisson distribution with a
mean of 2.4. Because of the nature of the item, units remaining at the close of business each day must be removed
at a cost of $2 each. What is the optimum stocking level, and what is the effective service level? 155. Joe’s Coffee Shoppe has fresh doughnuts delivered
each morning. Daily demand for plain doughnuts is approximately normal with a mean of 200 and a standard
deviation of 15. Joe pays $1.20 per dozen and has a standing order for 16 dozen. Joe and the staff eat any
leftovers. What is the implied shortage cost? 156. A restaurant prepares Peking Duck daily at a cost
of $18 per duck. Each duck generates revenue of $47 if sold. Demand for Peking Duck can be described by a Poisson
distribution with a mean of 4.2 ducks per day. Unsold ducks at the end of each day are converted to duck
soup at an additional cost of $5 over and above the resulting value as soup. How many ducks should be prepared
each day? 157. A machine is expected to use approximately three
spare parts during its useful life. The spares cost $200 each and have no salvage value or other use. The manager has
ordered ?ve spares. Assuming a Poisson usage rate, what range of shortage cost is implied? 158. A manager intends to order a new machine and must
now decide on the number of spare parts to order along with the machine. The parts cost $400 each and have no
salvage value. The manager has compiled a frequency distribution for the probable usage of spare parts, as
shown. For what range of shortage costs would stocking one spare part constitute an optimal decision?Number of The Corner Newsstand has demand for a certain weekly
magazine that can be approximated by a Poisson distribution with a mean of 9.0. Magazines are purchased for
$1.50. 159. If unsold copies can be returned for half
credit and the owner stocks ten copies, what is the implied range of shortage cost? 160. If unsold copies must be destroyed and copies sell
for $4.00 each, ?nd the optimum stocking level. 161. If unsold copies can be returned for half credit
and copies sell for $4.25 each, ?nd the optimal stocking level. 162. Demand for a component averages 80 units per week,
with a weekly standard deviation of demand of 14 units. The current supplier of this component offers a
four-week lead time. Stockout risk is to be kept at 8%. Assume that it costs $50 to hold one unit in inventory for a
year. Suppose the annual cost for the items would be $500 higher if they were purchased from another vendor, but
that vendor would offer a two-week lead time.
Would it be better to go with the more-expensive but
more-responsive vendor?

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