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Inventory Management and Control- LOGS313

Exam #2

Tuesday 111 12/2018

Sunday 16/ 12/2018

Time: 60 minutes \J-..QJv~ ./'

Student Name: ~5' W\'Y" 1.­
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A penci'1 suppl'ler Just Intro uced quanti'f
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XYZ store's annual demand remains{at 500 lllJits and ordering cost at $20 ' r order. Annual holding cost i~cent of the pencils'

per-unit price. ~D ;7 \t

1. What order quantity should XYZ select to minimize all costs'! Explain your answer.
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Jamil is in charge ofproduction for a small producer..nftllu;nt'mgL pplies. The cricket model has an estimated annual demand ~5,0~
units and can be produc~d at a production rate ?{ioo ~ts per day. :ne comp~ roduc~s (and sells) the cricketJ~s per year.
Setup cost to produce thiS model averages$25indiJ:leitem has a holding cost ,f$5 r umt per year. n I )"Uoo
What is the economic production~ .5 ~ ~
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3. If Jamil chooses to produce batches dictated by the economic production lot size (ELS) model, what is the time between runs
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You are the operations manager of a firm that uses the continuous-review inventory control system. Suppose the firm operates 52 weeks
a year, 365 days, and has the following characteristics for its primary item.
Demand = 25,000 unitslyear Ordering cost = $30/order Holding cost = $8/unit/year
Lead time = 2 weeks Standard deviation in weekly demand = 100 units
4. What safety stock level provides a 95% cycle-service level (z=1.68)?

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 Hamid looked at an inventory item and decided that the holding cost is about 25 per cent of value a year while the shortage cost for

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back-orders is 150 per cent of value a year. Unit cost is $400 and reorder cost is $100. Demand is constant at 300 units a year and all
shortages are met by backorders. l+
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5. What is the optimal ordering quantity for this item?
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6. What is the optimal amount to be met from back-orders?

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Consider the following information regarding a certain item in inventory:

Demand = 52,000 units/year Standard deviation of weekly demand = 110 units
Ordering costs = $45/0rder Holding costs = $0.50/unitlyear Cycle-service level = 90% (z = 1.28)
Lead time = 2 weeks Number of weeks per year = 52 weeks
If the firm uses the periodic review system to control the item depicted abo~ews the item's status every three
week~t the most recent inventory review, an inventory clerk fo~its. There were no scheduled
recei~backorders.
7. How many units should be ordered? I
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Consider the following scenario: Kyle store sells K2 skis. The store makes a $200 profit per unit sold during the ski season, but it will

take a $50 loss per unit if sold after the season is over. The following discrete probability distribution has been estimated for the

season's demand. Answer questi;-:;0-:::n:.:,s..:1:.:,9...;&:..::-=2::..:0'-'-._ _ _ _,------::-=----,r--::-::---r_::-:-_r-----;-:r---,--::-:---I

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8. What is the expected payoff for an order quantity of 30 units?

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9. An item's inventorvposition a continuous review system mcre'dSes by Q units as soon as an order is received.

10. UnderaQ a fixed auantitv Q is ordered when the inventory position reaches the reorder R.
11. ·vd"...,,,,,,ri,..,. level as a measure of customer service is defined as the desired probability of not running out of stock in any

one inventory cycle.

An item's on-hand inventory increases by Q units as soon as an order is received.

13. Under a continuous review an item's inventory position corresponds to the on-hand inventory unless there are

backorders or one or more scheduled """""pcs,

14. Under a Q system, a fixed quantity is ordered every P time periods.

5. The inventory position of an item measures the item's to satisfy future demand, on the on-hand inventory

and scheduled receipts after deducting backorders.

16. Under a P system, an order is placed to replenish the position up to the target level Twhen the inventory position

reaches the reorder point R.

17. Under a P system, an order is placed to replenish the inventory position up to the target level P time J..'t:'nuus.

18. CYCle-ServIce level as a measure of customer service represents the number of stockouts tolerated per year.

19. For an item under periodic review, the on-hand is only 20 units and the inventory, T, is 150 units. There are

no backorders, but there is one open order for 90 units. Int is time to review now, we should order 40 units.

3
9' fTime: 60 minutes

Stud,nt N,m" \b -"

Inventory Management and Control - LOGS313

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.. Exam # 2
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A pencil supplier just introduced quantity discounts. The price schedule follows
Order Quantity Price per Unit
000-l99 $4.00
200-399 $3 .00
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XYZ store's annual demand remain
per-unit price.
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l. What order quantity should xU select to minimize all costs? Explain your answer.
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o Jamil~in charge of production for a small producer Of~

~mits and can
· ~ nv uPP\ies. The cricket model has an estimated annual demand of
be produced at a producti~e 0 lOO tili.>its per day. The com ~roduces (and sells) the cricke~ d ~ per
year. Setup cost to produce this model average~~m has a holding cost ~Jer unit per year. 1) I
2. What is the economic production lot size (ELS)? ...) ..I h \ // ~ __ .jl.:!Ut
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3. If Jamil chooses to produce batches dictated by the economicProduction lot size (ELS) model, what is the time between runs
orTBO?

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You are the operations manager of a firm that uses the continuous-review inventory control system. Suppose the firm operates 50
weeks a year, and has the following characteristics for its primary item.

Demand = 25,000 units/year Ordering cost = $30/0rder Holding cost = $8/unit/year

Lead time = 2 weeks Standard deviation in weekly demand = lOO units

4. What safety stock level provides a 90% cycle-service level (z= 1.28)?

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Hamid looked at ~ nventory
item and decided that the hOI.ding cost is about~
per ce t of value a year while the s hortage cost for
back-orders is 50 perj:ent of value a year. Unit cost is $450 and reorder cost ' :1 Demand is constant€50 O:=~its a year and all
shortages are ~6ackQrders. .. '!--- J: - f... c.. . D
5. What is the 0 timal ordering quantity 'fur this item? ____

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6. What is the optimal amount to be met from back-orders? Lf••
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Consider the following information regarding a certain item in inventory :

Demand = 52,000 units/year Standard deviation of weekly demand = 110 units

Ordering costs = $45/order Holding costs = $0.50/unit/year Cycle-service level = 95% (z = 1.68)

Lead time = 2 weeks Number of weeks per year = 50 weeks

If the firm uses the periodic review system to control the ite41:ep~d above. It reviews the item's status every three week~
At the most recent inventory review, an inventory clerk foun 1,500 nits. There were no scheduled receipts and no backorders.
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7. How many units should be ordered? ('J H

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Consider the following scenario: Kyle store sell s K2 skis. The store makes a $200 profit per unit sold during the ski season, but it will
take a $50 loss per unit if sold after the season is over. The following discrete probability di stribution has been estimated for the
season's demand . Ar:ti6"!ebQtlmi... iIY 19 &: 26'.
I Demand

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W~atlstheexpectedpayoffforanorderquantityof20units?
. Demand probability

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True / False Questions:

9. For an item under periodic review, the on-hand inventory is only 20 units and the target inventory, T, is 150 units. There are
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'f no backorders, but there is one open order for 90 units. If it is time to review now, we should order 40 units .

~10 . An item ' s inventory position under a continuous review system increases by Q units as soon as an order is received.

4'11. Under a Q system, a fixed quantity Q is ordered when the inventory position reaches the reorder point R.

12. Cycle-service level as a measure of customer service is defined as the desired probability of not running out of stock in any

1 one inventory cycle.

~13. An item's on-hand inventory increases by Q units as soon as an order is received.

14. Under a continuous review system, an item ' s inventory position corresponds to the on-hand inventory unless there are

'f backorders or one or more scheduled receipts.

f iS . Under a Q system, a fixed quantity is ordered every P time periods .

,
,.)-6. The inventory position UP) of an item measures the item ' s abili ty to satisfy future demand, relying on the on-hand inventory

and scheduled receipts after deducting backorders.

17. Under a P system, an order is placed to replenish the inventory position up to the target level T when the inventory position

f
~18.
reaches the reorder point R.

Under a P system, an order is placed to replenish the inventory position up to the target level T every P time periods.

t== 19. Cycle-service level as a measure of customer service represents the number of stockouts tolerated per year.