Question

1. The use of a production smoothing strategy creates inventory for products that experience a seasonal fluctuation in demand.   True or False ?

2. Companies belonging to the same industry segment should have the same inventory turns.  True or False ?

3. Which of the following is a work-in-process inventory for C&A Bakery?

A. Flour

B. Cupcakes freshly out of the oven

C. Ovens

D. Cupcake mix prepared from scratch

4. C&A has on average $6000 in inventory and its daily sales are $200. What is its days-of-supply?

A. 30 Days-of-supply = Inventory/daily sales = 6000/200 = 30 days.

B. 200

C. 600

D. 1,200,000

5. A company turns its inventory six times a year. What is its months-of-supply?

A. 72

B. 6

C. 2

D. 0.5

6. Tier 2 suppliers are primary suppliers to manufacturers. True or False?

7. Lead time is a way to measure the availability of inventory. True or False?

8. Which of the following statements is TRUE regarding tier 1 suppliers?

A. Tier 1 suppliers are the starting point of a supply chain.

B. Tier 1 suppliers are the primary suppliers to tier 2 suppliers.

C. Tier 1 suppliers are the primary suppliers to retailers.

D. Tier 1 suppliers are the primary suppliers to manufacturers.

9. Company A provides corn to Company B to make into corn syrup. Company B sells its corn syrup to Company C, who makes ice cream for sale at Company D. Company D is a ___________ in the supply chain of ice cream.

A. tier 2 supplier

B. tier 1 supplier

C. retailer

D. manufacturer

10. Company A fails to satisfy some 15% of customers’ orders last month. What is Company A’s in-stock probability?

A. 15%

B. 85%

C. 100%

D. Cannot be determined

11. Expanding product variety does not always result in an increase in profit.  True or False?

12. When solving for an optimal order quantity in the presence of a quantity discount, a rule of thumb is to select an order quantity which takes advantage of the discount.

True or False?

14. C&A sells 600 bottles of a dietary supplement per week at $100 per bottle. The supplement is ordered from a supplier who charges C&A $30 per order and $50 per bottle. C&A’s annual holding cost percentage is 40%. Assume C&A operates 50 weeks in a year. What is C&A’s total ordering and holding cost per year if C&A orders 500 bottles at a time?

A. $5036

B. $6800

C. $10036

D. $11800x

15. C&A purchases fertilizer for its lawn-care business from a supplier who charges $30 per order and $50 per case. Each case consists of five bags of fertilizer. C&A needs 2000 bags of fertilizer a year. C&A’s annual holding costs are 30%. What is C&A’s holding cost per case per year?

$15 Holding cost per case per year = $50 × 30% = $15.

B. $10

C. $5

D. $3

16. The optimal order quantity that maximizes expected profit is always equal to the mean of the demand distribution. True or False?

17. A make-to-order system is more suitable if leftover inventory is expensive for the product.   True or False?

18. A wide and short density function has a large ____________ relative to the

_________.

A. standard deviation, mean

B. standard deviation, outcome

C. mean, standard deviation

D. mean, outcome

19.   Bakery A sells bread for $2 per loaf that costs $0.50 per loaf to make. Bakery A gives an 80% discount for its bread at the end of the day. What is the underage cost?

A. $0.10

B. $0.40

C. $0.50

D. $1.50

20. Store A uses the newsvendor model to manage its inventory. Demand for its product is normally distributed with a mean of 500 and a standard deviation of 300. Store A purchases the product for $10 each unit and sells each for $25. Inventory is salvaged for $5. What is its maximum profit?

Maximum profit = Expected demand X Profit per unit sold

0.7734 Exp Dem=732.02

A. $5000

B. $7500

C. $8000

D. $12,500

This is the end of the multiple choice or True/False section.

PART II: Problem Solving

Answer the following questions in the space provided below each question. Be absolutely as neat/brief/elegant as possible but show all work (how you got the answer). I value correctness much more than “blah, blah, blah.” That said, I can only award partial credit to wrong answers if justifications are provided.

21. C&A reports annual sales of $5 million, cost of goods sold of $2 million, inventory of $0.5 million, and net income of $0.75 million. What are C&A’s annual inventory turns and month-of-supply of inventory?

Inventory turn = COGS / Average Inventory = 2/0.5 = 4

Months-of- Supply Inventory= Avg Inventory/ COGS*12 months= (0.5/2)*12=3 months

22. C&A purchases cases of fertilizer for its lawn-care business from a supplier who charges C&A $30 per order and $50 per case. Each case consists of five bags of fertilizer. C&A needs 2000 bags of fertilizer a year. C&A’s annual holding costs are 30%. How many cases of fertilizer should C&A order from its supplier with each order to minimize the total ordering and holding cost?

40

23. Bakery A uses 80 bags of chocolate chips each year. The chocolate chips are purchased from a supplier for a price of $80 per bag and an ordering cost of $20 per order. Bakery A’s annual inventory holding cost percentage is 40%. If Bakery A chooses an order quantity of 10 bags, what are its ordering and holding costs per year expressed as a percentage of their annual purchasing cost?

Order Size = Demand/no. of orders = 80/10 = 8 bags per order

Annual Ordering Cost = no. of orders x cost per order = 10 x 20 = $200

Annual holding Cost = Average inventory x holding charge x unit cost

Annual holding Cost = (Q/10) x I x C = 200/10 x 0.4 x 80 = $640

Annual Ordering and Holding cost = 200+ 640 = $840

24. Store A uses the newsvendor model to manage its inventory. Demand for its product is normally distributed with a mean of 500 and a standard deviation of 200. Store A purchases the product for $10 each unit and sells each for $30. Inventory is salvaged for $5.What is its expected profit if Store A’s order quantity is 400 units? 13.8 textbook

Expected Profit=Q*(sell price-cost price) =`400*(30-10)=400*20=$8,000

14. Annual Requirement = Weekly Demand x Number of operational weeks

= 600 x 50 = 30,000 Bottles

Number of orders = Annual demand / Order Size

= 30,000 / 500

= 60

Ordering Cost = Number of orders x Ordering cost per order

= 60 x $30

= $1,800

Average Inventory = Lot Size / 2 = 500 / 2 = 250 Bottles

Holding cost per unit = Purchase Price x Holding cost percentage

= $50 x 40% = $20 per unit per annum

Holding cost of average inventory = Average Inventory x Holding cost per unit per annum

= 250 x $20 = $5,000

So, total ordering and holding cost per year when lot size is 500

= $1,800 + $5,000

= $6,800

22.

Answer 1

1. True, since in production levelling, the production is made at constant levels, hence fluctuation in demand levels causes to increase the inventory levels when demand goes down and use up inventory fast enough when demand goes up.

2. False, Companies may be in the same industry but they may have different products, different demand for those products, different country the company is situated in hence the inventory turnover will vary.

3. option D. Cupcake mix prepared from scratch

work in process inventory is something which is which is half prepared or in the process of completetion, only option D is half prepared sinxe it is a cupcake mix, still baking needs to be done in the oven.

4. option A. 30 Days-of-supply = Inventory/daily sales = 6000/200 = 30 days.

the formula given is correct and that is how we calculate the days of supply.