Chapter 12

Which of the following is NOT a possible complication that prevents a firm from ordering at the economic order quantity level?

A supplier charges a fixed cost to place an order.

Which of the following graphs correctly portrays the relationship between ordering cost per year (y-axis) and order quantity (x-axis) according to the economic order quantity model?

A. U-shaped curve from high to low (left to right)

Firm B's demand for a product is 10 units per month. Its supplier charges an ordering cost of $5 per order and $10 per unit with a 10% discount for orders of 25 units or higher. Firm B incurs a 30% annual holding cost. How much does Firm B save each year (including purchasing, ordering, and holding costs) if it purchases enough units to get the discount?

A. $122.25

C&A purchases fertilizer for its lawn-care business from a supplier who charges $30 per order and $50 per case. Each case consists of five bags of fertilizer. C&A needs 2000 bags of fertilizer a year. C&A's annual holding costs are 30%. What is C&A's holding cost per bag per year?

A. $3

Company C&A sells 600 bottles of a dietary supplement per week at $100 per bottle. The supplement is ordered from a supplier who charges Company C&A $30 per order and $50 per bottle. Company C&A's annual holding cost percentage is 40%. Assume Company C&A operates 50 weeks in a year. What is Company C&A's total ordering and holding cost per year if the order quantity is 200?

A. $6500

Firm B's demand for a product is 100,000 units. It has a holding cost of $50 per unit per year and an ordering cost of $10 per order. If the firm is required to order an integer multiple of 150 units, what order quantity should it use to minimize ordering and holding costs?

A. 150

Restaurant A uses 60 bags of tomatoes each month. The tomatoes are purchased from a supplier for a price of $80 per bag and an ordering cost of $20 per order. Restaurant A's annual inventory holding cost percentage is 40%. If Restaurant A chooses to use the economic order quantity when placing an order for tomatoes, what are its ordering and holding costs per year expressed as a percentage of the annual purchasing cost?

A. 2%

Company A purchases cases of fertilizer for its lawn-care business from a supplier who charges $30 per order and $50 per case. Each case consists of five bags of fertilizer. Company A needs 2000 bags of fertilizer a year. Company A's annual holding costs are 30%. If Company A only has room to hold 25 cases of fertilizer, how many cases should Company A order each time to minimize the total holding and ordering cost?

A. 25

Bakery A uses 60 bags of flour each month. The flour is purchased from a supplier for a price of $80 per bag and an ordering cost of $20 per order. Bakery A's annual inventory holding cost percentage is 40%. What is its economic order quantity?

A. 30

Company C&A sells 600 bottles of a dietary supplement per week at $100 per bottle. The supplement is ordered from a supplier who charges Company C&A $30 per order and $50 per bottle. Company C&A's annual holding cost percentage is 40%. Assume Company C&A operates 50 weeks in a year. What order quantity minimizes Company C&A's total ordering and holding cost per year?

A. 300

C&A purchases cases of fertilizer for its lawn-care business from a supplier who charges C&A $30 per order and $50 per case. Each case consists of five bags of fertilizer. C&A needs 2000 bags of fertilizer a year. C&A's annual holding costs are 30%. How many cases of fertilizer should C&A order from its supplier with each order to minimize the total ordering and holding cost?

A. 40

. Company A purchases cases of fertilizer for its lawn-care business from a supplier who charges Company A $30 per order and $50 per case. Each case consists of five bags of fertilizer and the order size must be an integer multiple of five bags. Company A needs 2000 bags of fertilizer a year. Company A's annual holding costs are 30%. What would be the order quantity that minimizes annual ordering and holding costs?

A. 40 cases

Which of the following is a pallet?

A. It is the quantity of inventory that is stacked on the platform.

The parameters of the economic order quantity (EOQ) model include all of the following except:

A. order quantity.

Product ___________ refers to the situation when customers are willing to purchase a less preferred version when their most preferred version is not available.

A. substitution

. Firm A's demand for a product is 15 units per month. Its supplier charges an ordering cost of $5 per order and $10 per unit with a 10% discount for orders of 15 units or higher. Firm A incurs a 25% annual holding cost. What is Firm A's annual ordering costs if it orders at a quantity of 28 units?

B. $32.14

Firm C's demand for a product is 60 units per month. Its supplier charges an ordering cost of $40 per order and $35 per unit with a 20% discount for orders of 100 units or more. Orders must be placed in integer multiples of 100 units. Firm C incurs a 20% annual holding cost. What is the optimal order quantity that minimizes the total purchasing, ordering, and holding cost?

B. 100

Firm A's demand for a product is 100,000 units. It has a holding cost of $10 per unit per year and an ordering cost of $50 per order. If the firm is required to order an integer multiple of 500 units, what order quantity should it use to minimize ordering and holding costs?

B. 1000

Bakery A uses 60 bags of flour each month. The flour is purchased from a supplier for a price of $80 per bag and an ordering cost of $20 per order. Bakery A's annual inventory holding cost percentage is 40%. If Bakery A chooses to use the economic order quantity for flour purchases, what will be its average inventory?

B. 15

Company A sells 600 bottles of a dietary supplement per week at $100 per bottle. The supplement is ordered from a supplier who charges Company A $40 per order and $50 per bottle. Company A's annual holding cost percentage is 30%. Assume Company A operates 50 weeks in a year. What is the economic order quantity?

B. 400

When is expanding product variety not a good idea?

B. When adding variety increases total demand insignificantly

The assumptions behind the economic order quantity (EOQ) model include all of the following EXCEPT:

B. a fixed ordering cost per year

Economies of scale describes the relationship between ___________ and ___________.

B. operational efficiency, demand

. Firm A's demand for a product is 15 units per month. Its supplier charges an ordering cost of $5 per order and $10 per unit with a 10% discount for orders of 15 units or higher. Firm A incurs a 25% annual holding cost. What is Firm A's annual holding cost if it orders at a quantity of 28 units?

C. $31.50

C&A sells 600 bottles of a dietary supplement per week at $100 per bottle. The supplement is ordered from a supplier who charges C&A $30 per order and $50 per bottle. C&A's annual holding cost percentage is 40%. Assume C&A operates 50 weeks in a year. What is C&A's total ordering and holding cost per year if C&A orders 500 bottles at a time?

C. $6,800

Firm C's demand for a product is 60 units per month. Its supplier charges an ordering cost of $40 per order and $35 per unit with a 20% discount for orders of 100 units or more. Firm C incurs a 20% annual holding cost. What is the optimal order quantity that minimizes the total purchasing, ordering, and holding cost?

C. 101

Firm B's demand for a product is 10 units per month. Its supplier charges an ordering cost of $5 per order and $10 per unit with a 10% discount for orders of 15 units or higher. Firm B incurs a 30% annual holding cost. What is the optimal order quantity for Firm B (i.e., the order quantity that minimizes the total purchasing, ordering, and holding cost)?

C. 21

Bakery A uses 60 bags of flour each month. The flour is purchased from a supplier for a price of $80 per bag and an ordering cost of $20 per order. Bakery A's annual inventory holding cost percentage is 40%. If Bakery A chooses to use the economic order quantity for flour purchases, how many orders will be placed with the supplier each year?

C. 24

Bakery A uses 80 bags of chocolate chips each year. The chocolate chips are purchased from a supplier for a price of $80 per bag and an ordering cost of $20 per order. Bakery A's annual inventory holding cost percentage is 40%. If Bakery A's demand for the chip is doubled, what will be the percentage change in its economic order quantity?

C. 41% increase

Firm A purchases cases of fertilizer for its lawn-care business from a supplier who charges $40 per order and $60 per case. Each case consists of four bags of fertilizer. Firm A needs 1600 bags of fertilizer a year. Firm A's annual holding costs are 25%. What is Firm A's economic order quantity?

C. 46

Which of the following is TRUE regarding the economic order quantity (EOQ) model?

C. Holding cost per unit per year is independent of order quantity.

Which of the following statements concerning the economic order quantity (EOQ) model is FALSE?

C. If the order quantity is large, the ordering cost dominates the EOQ cost

Which of the following is TRUE regarding the source of economies of scale in inventory management according to the economic order quantity model?

C. The source of economies of scale is a fixed ordering cost.

As demand increases, the sum of ordering and holding costs per period for the economic order quantity _______ at a rate _________ than demand.

C. increases, slower

C&A purchases cases of fertilizer for its lawn-care business from a supplier who charges C&A $30 per order and $50 per case. Each case consists of five bags of fertilizer. C&A needs 2000 bags of fertilizer a year. C&A's annual holding costs are 30%. If C&A uses the economic order quantity when placing orders, what will be its annual ordering and holding cost per case of fertilizer?

D. $1.50

Company A purchases cases of fertilizer for its lawn care business from a supplier who charges Company A $30 per order and $50 per case. Each case consists of five bags of fertilizer. Company A needs 2000 bags of fertilizer a year. Company A's annual holding costs are 30%. If Company A only has room to hold 30 cases of fertilizer, what would be the annual ordering and holding costs per case of fertilizer?

D. $1.56

C&A purchases fertilizer for its lawn-care business from a supplier who charges $30 per order and $50 per case. Each case consists of five bags of fertilizer. C&A needs 2000 bags of fertilizer a year. C&A's annual holding costs are 30%. What is C&A's holding cost per case per year?

D. $15

Firm A's demand for a product is 15 units per month. Its supplier charges an ordering cost of $5 per order and $10 per unit with a 10% discount for orders of 15 units or higher. Firm A incurs a 25% annual holding cost. Firm A orders at a quantity of 28 units. What is its annual total cost?

D. $1684

Firm C's demand for a product is 60 units per month. Its supplier charges an ordering cost of $40 per order and $35 per unit with a 20% discount for orders of 100 units or more. Firm C incurs a 20% annual holding cost. Calculate the economic order quantity without the discount. Then calculate the economic order quantity with the discounted price. What will be the change in Firm C's annual total cost (purchasing, holding, and ordering) if it decides to take advantage of the quantity discount?

D. $5107 decrease

Bakery A uses 60 bags of flour each month. The flour is purchased from a supplier for a price of $80 per bag and an ordering cost of $20 per order. Bakery A's annual inventory holding cost percentage is 40%. If Bakery A chooses to use the economic order quantity for flour purchases, what will be the total of its holding and ordering costs per year?

D. $960

Store A purchases cases of fertilizer for its lawn-care business from a supplier who charges Store A $30 per order and $50 per case. Each case consists of five bags of fertilizer. Store A needs 2000 bags of fertilizer a year. How many orders does Store A place per year if the order quantity is 40 cases?

D. 10

Store A purchases cases of fertilizer for its lawn-care business from a supplier who charges Store A $30 per order and $50 per case. Each case consists of five bags of fertilizer. Store A needs 2000 bags of fertilizer a year. Store A's annual holding costs are 30%. If Store A's order quantity is 40 cases, what is its average inventory level?

D. 20

Firm B's demand for a product is 10 units per month. Its supplier charges an ordering cost of $5 per order and $10 per unit with a 10% discount for orders of 25 units or higher. Firm B incurs a 30% annual holding cost. What is the optimal order quantity for Firm B?

D. 25

Bakery A uses 80 bags of chocolate chips each year. The chocolate chips are purchased from a supplier for a price of $80 per bag and an ordering cost of $20 per order. Bakery A's annual inventory holding cost percentage is 40%. If Bakery A chooses an order quantity of 10 bags, what are its ordering and holding costs per year expressed as a percentage of their annual purchasing cost?

D. 5%

. _________ in demand rate of a product makes its inventory management __________ because of an increase in inventory costs.

D. A decrease, less efficient

Restaurant A uses 60 bags of potatoes each month. The potatoes are purchased from a supplier for a price of $80 per bag and an ordering cost of $20 per order. Restaurant A's annual inventory holding cost percentage is 40%. If Restaurant A's demand for the potatoes is decreased by 10%, what will be the change in its economic order quantity?

D. Decreases from 30 to 28.5 bags

Which of the following is a consequence of economies of scale according to the economic order quantity model?

D. More product variety does not always result in higher profit.

Which of the following is TRUE when solving for the optimal order quantity in the presence of a quantity discount?

D. The economic order quantity at the discount price is the optimal order quantity if it is greater than or equal to the threshold needed for the quantity discount.

The sum of ordering and holding costs per period for the economic order quantity becomes a ________ percentage of the purchasing cost as the demand rate __________.

D. smaller, increases

The ________ of the product refers to how high the product can be put on top of another without causing damage to the lower layers.

D. stackability

A firm's ordering cost per year is independent of its order quantity decision.

False

As demand increases, the optimal economic order quantity increases at the same rate of demand.

False

Limited inventory always increases demand because of the scarcity effect.

False

When solving for an optimal order quantity in the presence of a quantity discount, a rule of thumb is to select an order quantity which takes advantage of the discount.

False

When solving for an optimal order quantity in the presence of order quantity restrictions, a rule of thumb is to order at a feasible quantity closest to the economic order quantity.

False

Expanding product variety does not always result in an increase in profit.

True

Which of the following graphs correctly portrays the relationship between total inventory costs per year (y-axis) and order quantity (x-axis) according to the economic order quantity model?

U-shaped curve from low to high (left to right)

Company A purchases fertilizer for its lawn-care business from a supplier who charges $30 per order and $50 per case. Each case consists of five bags of fertilizer and the order size must be an integer multiple of five bags. Company A needs 2015 bags of fertilizer a year. Company A's annual holding costs are 30%. What is the order quantity to minimize the total holding and ordering cost? (Select all that apply.)

X 200 bags X 205 bags

Which of the following graphs correctly portrays the relationship between holding cost per year (y-axis) and order quantity (x-axis) according to the economic order quantity model?

straight x^2 graph from low to high (left to right)

Which of the following graphs correctly portrays the relationship between inventory level (y-axis) and time (x-axis) according to the economic order quantity model?

zig-zag graph