A decrease in inventory order costs will
Answer(s): A
A decrease in inventory ordering costs should decrease the economic order quantity. The effect is that more orders can be made of smaller quantities) without increasing costs. Accordingly, in the EOQ model, ordering cost is a numerator value.
Which one of the following items is not directly reflected in the basic economic order quantity EOQ) model?
Answer(s): D
The basic EOQ model minimizes the sum of ordering or setup) and carrying costs. Included in the formula are annual demand, ordering or setup) costs, and carrying costs. Carrying costs include warehousing costs, insurance, spoilage, obsolescence, and interest on invested capital. The cost of the inventory itself and any quantity discounts lost on inventory purchases are not components of the EOQ model.
In production management, product breakdown into component parts and lead times for procuring these parts is necessary for
Answer(s): B
Materials requirements planning MRP) is usually considered a computer-based I information system designed to plan and control raw materials used in a production setting. It assumes that estimated demand for materials is reasonably accurate and that suppliers can deliver based upon this accurate schedule. It is crucial that delivery delays be avoided because, under MRP, production delays are almost unavoidable if the materials are not on hand. An MRP system uses a parts list, often called a bill of materials, and lead times for each type of material to obtain materials just as they are needed for planned production.
The inventory model that follows the concept that 80% of the value of an inventory is in 20% of the inventory items is the
The ABC method of inventory control requires management to exert greatest control over the A classification items, which usually include a relatively small percentage of total items but a high percentage of the dollar volume. This method is analogous to the 80/20 rule, which says, for instance, that 20% of the customers account for 80% of the profit.
When a specified level of safety stock is carried for an item in inventory, the average inventory level for that item
If there is no safety stock, the average level of inventory will be one-half of the economic order quantity. For example, if the EOQ is 500, the basic model predicts that the average inventory level will be 250. The company will have 500 units immediately after a purchase and zero immediately before the receipt of the next purchase replenishment is assumed to be instantaneous). However, safety stock increases the average inventory level by the amount of the safety stock. The modified EOQ model assumes that safety stock will never be used. Thus, if a safety stock of 100 is carried by the company in the example, the average inventory level will increase to 350. Inventory will be 600 units immediately upon receipt of a purchase and 100 units immediately before the receipt of the next purchase.
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