The purpose of the economic order quantity model is to:
Answer(s): B
The purpose of the EOQ model is to minimize the sum of inventory order costs setup) and holding carrying) costs. The EOQ equals the square root of: twice the annual demand multiplied by the variable cost per order, divided by the unit periodic holding cost.
Which of the follov5ring is used in determining the economic order quantity ECQ)?
The primary business application of differential calculus is to identify the maxima or minima of curvilinear functions. In business and economics, these are the points of revenue or profit maximization maxima) or cost minimization minima). The Eli results from differentiating the total cost with regard to order quantity.
The EOQ economic order quantity) model calculates the cost-minimizing quantity of a product to order, based an a constant annual demand, carrying costs per unit per annum, and cost per order. For example, the EOQ is approximately 447 units if the annual demand is 10,000 units, carrying costs are US $1 per item per annum, and the cost of placing an order is US $10.What will the EOQ be if the demand falls to 5,000 units per annum and the carrying and ordering costs remain at US $1 and US $10, respectively?
Answer(s): A
The ECQ formula isX = (2AD/K)1/2
A company stocks, maintains, and distributes inventory. The company decides to add to the safety stock and expedite delivery for several product lines on a trial basis. For the selected product lines the company will experience:
Safety stocks are amounts held in excess of forecasted demand to avoid the losses associated with stock outs. Holding safety stocks improves the level of service to customers at the expense of increased holding costs.
Which of the following inventory items would be the most frequently reviewed in an ABC inventory control system?
Answer(s): D
The ABC system is a method for controlling inventories that divides inventory items into three groups:Group A -- high-monetary value items, which account for a small portion perhaps 10%) of the total inventory usageGroup B -- medium-monetary value items, which may account for about 20°10 of the total inventory itemsGroup C -- low-monetary value items, which account for the remaining 70% of sales or usage The ABC system permits the proper degree of managerial control to be identified and exercised over each group. Group A items are reviewed on a regular basis. Group B items may not have to be revered as often as group A items, but more often than group C items. For group C, extensive use of models and records is not cost effective. It is cheaper to order large quantities infrequently. The ABC method therefore reduces the safety-stock investment because high-value items are frequently monitored and medium-value items are monitored more often than inexpensive items. Frequent review can prevent stockouts and decrease inventory levels, and the cost of such review is minimized if it is limited to high- or mediumvalue items.
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