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 company uses 9,000 units per annum. The component has a purchase price of $40 per unit and the cost of placing an order is $160. The annual holding cost of one component is equal to 8% of its purchase price. What is the EOQ (to the nearest unit) of the component?
- 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.The demand for a product is 12,500 units for a three month period. Each unit of product has a purchase price of $15 and ordering costs are $20 per order placed. The annual holding cost of one unit of product is 10% of its purchase price. What is the EOQ (to the nearest unit)?
- A.
577

- B.
1,816

- C.
1,866

- D.
1,155

- 7.The demand for an item of material is 8,000 units each year. The cost of making an order is $240. The purchase cost per unit is $9 and the holding cost of inventory is 6% per annum of the purchase cost. Using the economic order quantity formula, what quantity of the item should be purchased in each order (to the nearest unit)?
- 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