MAR 3203 EXAM 1 QUESTIONS WITH CORRECT ANSWERS |LATEST UPDATE
100% SOLVED| GRADED A+
Periodic review -Inventory level is only monitored at certain times (e.g. daily, weekly,
monthly,..)
-If inventory is at or below a certain level at the time of review an order is placed
Fixed order quantity Always order the same quantity
e.g. always order 100 units
Order up to level Order enough to bring inventory level up to a pre-specified target
Order quantity can vary
Ordering cost salaries and expenses of processing and receiving an order, regardless of the
order quantity
Holding cost usually a percentage of the value of the item assessed for keeping an item in
inventory (including cost of capital, insurance, security costs, taxes, warehouse overhead, and
other related variable expenses)
Backorder cost costs associated with being out of stock when an item is demanded
(including lost goodwill)
,Purchase cost -- the actual price of the items
Fixed-Order Quantity (Basic EOQ ) Model -Demand for the product is constant and uniform
throughout the period
-Lead time (time from ordering to receipt) is constant (Receipt of inventory is instantaneous
and complete)
-Price per unit of product is constant (Quantity discounts are not possible)
-Inventory holding cost is based on average inventory
-Ordering or setup costs are constant
-Stockouts can be completely avoided - All demands for the product will be satisfied.
The Economic Order Quantity (EOQ) model
looks at the trade off between fixed costs of ordering
and
inventory holding costs.
Frequent orders Small size
Incur fixed cost frequently
Low average inventory level
Infrequent orders Large size
Incur fixed cost infrequently
, High average inventory level
Why is it good that the total relevant cost curve is quite flat? It works even if all parameters
and assumptions are not met...
Safety Stock (SS) is the extra inventory held because of uncertainty
ROP is larger when there is uncertainty about demand
Higher safety stock implies higher average inventory levels and higher total holding costs, but
better service levels
Safety stock only affects the ROP, not the EOQ
Continuous Review Advantages Lower Safety Stock
Reduces stockout risk
Individual review of items is used and this may be very desirable for expensive items
Periodic Review Advantages -Less time consuming
-Less expensive to maintain
-Allows combining orders to the same supplier for transportation/cost economy
-Perishable products
100% SOLVED| GRADED A+
Periodic review -Inventory level is only monitored at certain times (e.g. daily, weekly,
monthly,..)
-If inventory is at or below a certain level at the time of review an order is placed
Fixed order quantity Always order the same quantity
e.g. always order 100 units
Order up to level Order enough to bring inventory level up to a pre-specified target
Order quantity can vary
Ordering cost salaries and expenses of processing and receiving an order, regardless of the
order quantity
Holding cost usually a percentage of the value of the item assessed for keeping an item in
inventory (including cost of capital, insurance, security costs, taxes, warehouse overhead, and
other related variable expenses)
Backorder cost costs associated with being out of stock when an item is demanded
(including lost goodwill)
,Purchase cost -- the actual price of the items
Fixed-Order Quantity (Basic EOQ ) Model -Demand for the product is constant and uniform
throughout the period
-Lead time (time from ordering to receipt) is constant (Receipt of inventory is instantaneous
and complete)
-Price per unit of product is constant (Quantity discounts are not possible)
-Inventory holding cost is based on average inventory
-Ordering or setup costs are constant
-Stockouts can be completely avoided - All demands for the product will be satisfied.
The Economic Order Quantity (EOQ) model
looks at the trade off between fixed costs of ordering
and
inventory holding costs.
Frequent orders Small size
Incur fixed cost frequently
Low average inventory level
Infrequent orders Large size
Incur fixed cost infrequently
, High average inventory level
Why is it good that the total relevant cost curve is quite flat? It works even if all parameters
and assumptions are not met...
Safety Stock (SS) is the extra inventory held because of uncertainty
ROP is larger when there is uncertainty about demand
Higher safety stock implies higher average inventory levels and higher total holding costs, but
better service levels
Safety stock only affects the ROP, not the EOQ
Continuous Review Advantages Lower Safety Stock
Reduces stockout risk
Individual review of items is used and this may be very desirable for expensive items
Periodic Review Advantages -Less time consuming
-Less expensive to maintain
-Allows combining orders to the same supplier for transportation/cost economy
-Perishable products
