10 Questions

Questions and Answers

- 1.
- A.
730

- B.
894

- C.
1,461

- D.
1,633

- 2.A company always determines its order quantity for a raw material by using the EOQ model. What would be the effects on the EOQ and the total annual holding cost of a decrease in the cost of ordering a batch of raw material?
- A.
EOQ: Higher, Annual Holding Cost: Lower

- B.
EOQ: Higher, Annual Holding Cost: Higher

- C.
EOQ: Lower, Annual Holding Cost: Higher

- D.
EOQ: Lower, Annual Holding Cost: Lower

- 3.
- A.
500 units

- B.
1,000 units

- C.
1,200 units

- D.
1,700 units

- 4.
- A.
530

- B.
671

- C.
949

- D.
1,342

- 5.A company determines its order for a component using EOQ. What would be the effects on the EOQ and the total annual ordering cost of an increase in the annual cost of holding one unit of the component in inventory?
- A.
EOQ: Lower, Total Annual Ordering Cost: Higher

- B.
EOQ: Higher, Total Annual Ordering Cost: Lower

- C.
EOQ: Lower, Total Annual Ordering Cost: No Effect

- D.
EOQ: Higher, Total Annual Ordering Cost: No Effect

- 6.
- A.
577

- B.
1,816

- C.
1,866

- D.
1,155

- 7.
- A.
800

- B.
843

- C.
1,886

- D.
2,667

- 8.
- A.
The company will minimise its total annual costs if it continues to purchase in the EOQ of 1,000 units per order.

- B.
The company will minimise its total annual costs if it continues to purchase in the EOQ of 2,000 units per order.

- C.
The company will minimise its total annual costs if it takes the larger order discount and purchases in quantities of 5,000 units per order.

- D.
The company will minimise its total annual costs if it takes the larger order discount and purchases in quantities of 10,000 units per order.

- 9.
- A.
400 units

- B.
2,800 units

- C.
3,200 units

- D.
7,100 units

- 10.A production department uses Component P to manufacture a product. This component is purchased from an external supplier in quantities of 3,000 units per order. Daily usage is 150 units of the component each day. The supply lead time is normally 6 days, but might be as little as 4 days or as much as 10 days. To avoid the risk of running out of inventory of Component P, what should be the reorder level for this item?
- A.
3,900 units

- B.
1,500 units

- C.
900 units

- D.
600 units