A+ Answers. **Question 1
**Consider a firm with a daily demand of 100 units, a production rate per day of 500 units, a setup cost of $200, and an annual holding cost per unit of $10. Suppose that the firm operates 300 days per year. How many units of inventory must their storage area be able to hold?

close to 975

close to 980

close to 1095

close to 1224

close to 1225

5 points

**Question 2**

If annual demand is 24,000 units, orders are placed every 0.5 months, and the cost to place an order is $50, what is the annual ordering cost?

50

600

1200

2400

Can not be determined

5 points

**Question 3**

If the Economic Order Quantity (EOQ) is ordered, which of the following is true?

Annual ordering cost exceeds annual holding cost.

Annual holding cost exceeds annual ordering cost.

Annual ordering cost is equal to annual holding cost.

The sum of annual ordering cost plus annual holding cost is maximized.

The annual holding cost curve is decreasing.

5 points

**Question 4**

The basic Economic Order Quantity (EOQ) model can be considered a special case of the Economic Production Quantity (EPQ) model under which of the following condition?

The demand per day is greater than production per day.

The production rate per day approaches 0.

The production rate per day approaches infinity.

The back order cost approaches infinity.

d/p = 1, where d is the demand per day and p Is the production per day.

5 points

**Question 5
**A company places purchase orders to buy two weeks’ supply at a time. Oscar Chen has just joined as the Director of Finance and has passed an order which says that one month’s supply should be purchased at a time. Which of the following is correct assuming all other variables remain unchanged?

The annual cost of carrying inventories will increase.

The annual cost of carrying inventories will decrease.

The annual cost of carrying inventories will not change.

Annual ordering cost will increase

None of the above

5 points

**Question 6**

A.K. Plywood Products offers the following all-units quantity discount schedule for its 4 feet by 8 feet sheets of quality plywood.

Order Size Price

1-9 sheets $25

10-49 sheets $23

50-99 sheets $21

100 sheets or more $18

Miami Home Furnishings (MHF) orders plywood from A.K. Plywood Products. MHF’s accounting department determines an ordering cost of $50 per order and an annual inventory holding cost percentage of 20% of the price of the item. The annual demand is 250 sheets. What should the order size be every time that an order is placed to minimize total annual cost?

250

10

50

100

77

5 points

**Question 7**

A company is using the Economic Order Quantity (EOQ) model to manage its inventories. Suppose its inventory holding cost per unit per year doubles while the annual demand and the ordering cost per order do not change. What will happen to the EOQ?

It doubles.

It increases by 41.42%.

It remains the same.

The EOQ reduces by about 30%.

It quadruples (increases by 400%).

5 points

**Question 8**

The annual demand for an item is 2400 units. The inventory holding cost is $ 6.00 per unit per year. The demand is continuous and constant, that is, 200 units/month. The item is purchased in two lots. The size of the first lot is 1600 units and the size of the second lot is 800 units. Find the total annual cost of holding inventory.

7200

4000

2400

1200

600

5 points

**Question 9**

A manufacturing company sells its products directly to customers and operates 5 days a week, 52 weeks a year. The production department of this company can produce at the rate of 60 units per day. The setup cost for a production run is $ 125.00. The cost of holding is $ 4.00 per unit per year. The demand for the item is continuous and constant and is 3,900 units per year. (Note: The demand occurs only when the company is operating, that is, 5 days a week for 52 weeks). Find the optimum number of units to be produced in one batch (economic production quantity). Round the number to nearest integer.

3900

570

494

300

60

5 points

**Question 10**

Use the following data:

**Cost Data**

Regular time labor cost per hour $10

Overtime time labor cost per hour $15

Subcontracting cost per unit (labor only) $80

Back order cost per unit per period $20

Inventory holding cost per unit per period $10

Hiring cost per employee $500

Firing cost per employee $400

**Capacity Data**

Beginning workforce 40 employees

Beginning inventory 0 units

Beginning back orders (shortages) 0 units

Production standard per unit (hours) 2 hours of labor per unit

Regular time available per period (hours) 160 hours per period per employee

Overtime time available per period (hours) 30 hours per period per employee

Number of days per period 20 days

Number of working hours per day 8 hours

**Demand Data**

Period 1 3,920 Period 5 3,800

Period 2 2,480 Period 6 4,340

Period 3 2,200 Period 7 4,820

Period 4 3,280 Period 8 4,600

Suppose you are designing a level aggregate plan using inventory and back orders (shortages). You are not using any overtime or subcontracting. What will be the production rate per period in the level aggregate production plan?

3680

3920

4600

5 points

**Question 11
**Use the following data:

**Cost Data**

Regular time labor cost per hour $10

Overtime time labor cost per hour $15

Subcontracting cost per unit (labor only) $80

Back order cost per unit per period $20

Inventory holding cost per unit per period $10

Hiring cost per employee $500

Firing cost per employee $400

**Capacity Data**

Beginning workforce 40 employees

Beginning inventory 0 units

Beginning back orders (shortages) 0 units

Production standard per unit (hours) 2 hours of labor per unit

Regular time available per period (hours) 160 hours per period per employee

Overtime time available per period (hours) 30 hours per period per employee

Number of days per period 20 days

Number of working hours per day 8 hours

**Demand Data**

Period 1 3,920 Period 5 3,800

Period 2 2,480 Period 6 4,340

Period 3 2,200 Period 7 4,820

Period 4 3,280 Period 8 4,600

Suppose you are designing a level aggregate plan using inventory and back orders (shortages). You are not using any overtime or subcontracting. How many workers per period (same for every period) are needed for the level aggregate plan?

40

46

23

12

5 points

**Question 12
**Use the following data:

**Cost Data**

Regular time labor cost per hour $10

Overtime time labor cost per hour $15

Subcontracting cost per unit (labor only) $80

Back order cost per unit per period $20

Inventory holding cost per unit per period $10

Hiring cost per employee $500

Firing cost per employee $400

**Capacity Data**

Beginning workforce 40 employees

Beginning inventory 0 units

Beginning back orders (shortages) 0 units

Production standard per unit (hours) 2 hours of labor per unit

Regular time available per period (hours) 160 hours per period per employee

Overtime time available per period (hours) 30 hours per period per employee

Number of days per period 20 days

Number of working hours per day 8 hours

**Demand Data**

Period 1 3,920 Period 5 3,800

Period 2 2,480 Period 6 4,340

Period 3 2,200 Period 7 4,820

Period 4 3,280 Period 8 4,600

Suppose you are using a chase strategy without inventory and back orders (shortages). In chase strategy you have to meet the demand in every period using regular time production, overtime production and subcontracting. There are 40 workers in each period. When demand is less than the regular time production capacity, you produce only the number of units that are demanded and some of the workers may remain idle. You do not hire and fire workers. What is the total overtime cost in his plan?

3080

46,200

92,400

None of the above

5 points

**Question 13
**Use the following data:

**Cost Data**

Regular time labor cost per hour $10

Overtime time labor cost per hour $15

Subcontracting cost per unit (labor only) $80

Back order cost per unit per period $20

Inventory holding cost per unit per period $10

Hiring cost per employee $500

Firing cost per employee $400

**Capacity Data**

Beginning workforce 40 employees

Beginning inventory 0 units

Beginning back orders (shortages) 0 units

Production standard per unit (hours) 2 hours of labor per unit

Regular time available per period (hours) 160 hours per period per employee

Overtime time available per period (hours) 30 hours per period per employee

Number of days per period 20 days

Number of working hours per day 8 hours

**Demand Data**

Period 1 3,920 Period 5 3,800

Period 2 2,480 Period 6 4,340

Period 3 2,200 Period 7 4,820

Period 4 3,280 Period 8 4,600

Suppose you are using a chase strategy without inventory and back orders (shortages). In chase strategy you have to meet the demand in every period using regular time production, overtime production and subcontracting. There are 40 workers in each period. When demand is less than the regular time production capacity, you produce only the number of units that are demanded and some of the workers may remain idle. You do not hire and fire workers. How many total units are being obtained through subcontracting?

3080

2480

25,600

1,720

5 points

**Question 14
**Use the following data:

**Cost Data**

Regular time labor cost per hour $10

Overtime time labor cost per hour $15

Subcontracting cost per unit (labor only) $80

Back order cost per unit per period $20

Inventory holding cost per unit per period $10

Hiring cost per employee $500

Firing cost per employee $400

**Capacity Data**

Beginning workforce 40 employees

Beginning inventory 0 units

Beginning back orders (shortages) 0 units

Production standard per unit (hours) 2 hours of labor per unit

Regular time available per period (hours) 160 hours per period per employee

Overtime time available per period (hours) 30 hours per period per employee

Number of days per period 20 days

Number of working hours per day 8 hours

**Demand Data**

Period 1 3,920 Period 5 3,800

Period 2 2,480 Period 6 4,340

Period 3 2,200 Period 7 4,820

Period 4 3,280 Period 8 4,600

Suppose you are using a chase strategy without inventory and back orders (shortages). In chase strategy you have to meet the demand in every period using regular time production, overtime production and subcontracting. There are 40 workers in each period. When demand is less than the regular time production capacity, you produce only the number of units that are demanded and some of the workers may remain idle. You do not hire and fire workers. How much is the total unused capacity (number of units)?

3080

2480

25,600

1,720

5 points

**Question 15
**Use the following data:

A company has the following demand for the next six months

MONTH DEMAND WORKING DAYS

January 500 21

February 630 20

March 580 22

April 520 19

May 510 20

June 560 18

Assume that an employee contributes 8 regular working hours per day. Overtime capacity is limited to a maximum of 25% of regular time capacity. In addition, the following data are available.

Time to produce one unit 4 hours

Shortage cost $10.00/unit/month

Beginning inventory 0

Inventory Carrying Cost $2.00/unit/month

Hiring Cost/Worker $100

Firing Cost/Worker $100

Regular Time Labor Cost $10/hour

Overtime Labor Cost 20% more than the regular cost

Round the number of workers to the next higher integer and production to the nearest lowest integer.

What is the overtime production capacity (maximum number of units that can be produced in overtime) in February if the number of workers is 15?

720

600

150

75

5 points

**Question 16**

Use the following data:

A company has the following demand for the next six months

MONTH DEMAND WORKING DAYS

January 500 21

February 630 20

March 580 22

April 520 19

May 510 20

June 560 18

Assume that an employee contributes 8 regular working hours per day. Overtime capacity is limited to a maximum of 25% of regular time capacity. In addition, the following data are available.

Time to produce one unit 4 hours

Shortage cost $10.00/unit/month

Beginning inventory 0

Inventory Carrying Cost $2.00/unit/month

Hiring Cost/Worker $100

Firing Cost/Worker $100

Regular Time Labor Cost $10/hour

Overtime Labor Cost 20% more than the regular cost

Round the number of workers to the next higher integer and production to the nearest lowest integer.

Suppose chase policy is being used, that is, the number of workers is changed every month to match demand with capacity. How many workers will you fire in March? (Note: you do not need the beginning number of workers to solve this problem).

2

None

16

14

Can not be determined

5 points

**Question 17**

Use the following data:

A company has the following demand for the next six months

MONTH DEMAND WORKING DAYS

January 500 21

February 630 20

March 580 22

April 520 19

May 510 20

June 560 18

Assume that an employee contributes 8 regular working hours per day. Overtime capacity is limited to a maximum of 25% of regular time capacity. In addition, the following data are available.

Time to produce one unit 4 hours

Shortage cost $10.00/unit/month

Beginning inventory 0

Inventory Carrying Cost $2.00/unit/month

Hiring Cost/Worker $100

Firing Cost/Worker $100

Regular Time Labor Cost $10/hour

Overtime Labor Cost 20% more than the regular cost

Round the number of workers to the next higher integer and production to the nearest lowest integer.

Suppose 15 workers are working in every month. What will be the total regular time cost for all months?

18,000

14,400

144,000

5 points

**Question 18**

The services are provided at the time they are needed. Therefore, the level production plan that makes use of inventories and back orders (shortages) can not be used in planning for providing services. Is this statement True or False?

True

False

5 points

**Question 19**

For the level aggregate plan, fluctuations in demand are absorbed by _____________. (Fill in the blanks).

inventory and subcontracting

back orders (shortages) and price changes

inventory and back orders (shortages)

price changes and subcontracting

subcontracting and back orders (shortages)

5 points

**Question 20**

Consider the data given in the following table and identify the appropriate category for item Stock Number D in an ABC classification.

**ABC Analysis**

**Item Stock Number**

**Annual Volume (units)**

**Unit Cost**

A 1250 $92.00

B 335 $0.64

C 1970 $18.75

D 2430 $62.35

E 990 $13.80

F 680 $89.40

G 2150 $0.98

H 210 $9.80

I 1250 $0.52

J 970 $16.80

A

B

C