CH 12 MG 403

Assume that Blazer DNA (Deoxyribonucleic Acid) Services uses 4,000 units of a special chemical a year. Based on order size, the units of special chemical are priced as follows: Order size (units) Costper unit 1-499 $0.90 500-999 $0.85 1000 & over $0.82 Furthermore, we know that it costs about $18 to prepare and receive an order, and carrying costs are 18 percent of cost per unit per annum (year). For a calculated EOQ of 970 units, what will be the approximate minimum total annual inventory costs? $3554.64 $3400.54 $3548 $3426 $74.21

$3548

Which of the following statements about ABC analysis is false? ABC analysis is based on the presumption that controlling the few most important items produces the vast majority of inventory savings. In ABC analysis, "A" Items are tightly controlled, have accurate records, and receive regular review by major decision makers. In ABC analysis, "C" Items have minimal records, periodic review, and simple controls. ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings. All of the above statements are true.

ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.

Which of the following statements regarding the reorder point is true? The reorder point is that quantity that triggers an action to restock an item. There is a reorder point even if lead time and demand during lead time are constant. The reorder point is larger than d x L if safety stock is present. The fixed-period model has no reorder point. All of the above are true.

All of the above are true

An inventory decision rule states "when the inventory level goes down to 14 gearboxes, 100 gearboxes will be ordered." Which of the following statements is true? One hundred is the reorder point, and 14 is the order quantity. Fourteen is the reorder point, and 100 is the order quantity. The number 100 is a function of demand during lead time. Fourteen is the safety stock, and 100 is the reorder point. None of the above is true.

Fourteen is the reorder point, and 100 is the order quantity.

Which of the following is not an assumption of the economic order quantity model shown below? Q* = Demand is known, constant, and independent. Lead time is known and constant. Quantity discounts are not possible. Production and use can occur simultaneously. The only variable costs are setup cost and holding (or carrying) cost.

Production and use can occur simultaneously.

In the quantity discount model, it is possible to have a cost-minimizing solution where annual ordering costs do not equal annual carrying costs. True False

True

ABC analysis classifies inventoried items into three groups, usually based on

annual dollar volume

The purpose of safety stock is to --------------. replace failed units with good ones eliminate the possibility of a stockout eliminate the likelihood of a stockout due to erroneous inventory tally control the likelihood of a stockout due to the variability of demand during lead time protect the firm from a sudden decrease in demand

control the likelihood of a stockout due to the variability of demand during lead time

If setup costs are reduced by substantial reductions in setup time, the production order quantity is also reduced. True False

true