SCM Quiz 5 Questions with 100%
Correct Answers
Using a computerized Inventory Management System, a Paint Supply Store
franchise continuously monitors the inventory of all the paint located at each of
their 15 stores and their distribution warehouse. The Paint Supply Store franchise
sells an average of 30 gallons of Red Paint every week (for 52 weeks per year).
Their current policy is that when they place an order for Red Paint from their
supplier, they order 70 gallons at a price of $2.00 per gallon. [The company does
not hold Safety Stock]
It takes 1.25 weeks to receive an order from the supplier.
Administrative costs for Ordering paint have been estimated to be $15 per
order.
Holding Costs = 20% of the purchase price per gallon per year.
What is the Total Annual Inventory Cost for the company's current policy?
Correct Answer: A. $348.29
Explanation:
Given that: The Paint Supply Store franchise sells an average of 30 gallons of Red
Paint every week (for 52 weeks per year) i.e weekly demand = 30 gallons
Since 30 gallons is demanded weekly
Then annual demand for a year that contains 52 weeks = 30 × 52 = 1560
Order quantity = 70 gallons
, Thus; number of orders = annual demand for a year / order quantity number of
orders = 1560 /70 number of orders = 22.2857
Price per gallon = $2.00
Time to receive order = 1.25 weeks
Administrative cost Ordering paint (i.e ordering cost per order) = $15
The total Ordering cost per order = number of orders × ordering cost per order
The total Ordering cost per order = 22.2857 × 15
The total Ordering cost per order = $334.2855
Holding cost = 20% of the purchase price per gallon per year
Holding cost = 20/100 × $2
Holding cost = 0.2 × $2
Holding cost = $0.4 per unit per year ∴
The Inventory Holding cost = ( order quantity /2 ) × holding cost The Inventory
Holding cost = (70/2) × 0.4 The Inventory Holding cost = 35 × 0.4
The Inventory Holding cost = $14
Finally, Total Annual Inventory Cost for the company's current policy is :
Total Annual Inventory Cost = Total Ordering cost per order + Inventory Holding
cost Total Annual Inventory Cost = $334.2855 + $14
Total Annual Inventory Cost = $348.2855
Correct Answers
Using a computerized Inventory Management System, a Paint Supply Store
franchise continuously monitors the inventory of all the paint located at each of
their 15 stores and their distribution warehouse. The Paint Supply Store franchise
sells an average of 30 gallons of Red Paint every week (for 52 weeks per year).
Their current policy is that when they place an order for Red Paint from their
supplier, they order 70 gallons at a price of $2.00 per gallon. [The company does
not hold Safety Stock]
It takes 1.25 weeks to receive an order from the supplier.
Administrative costs for Ordering paint have been estimated to be $15 per
order.
Holding Costs = 20% of the purchase price per gallon per year.
What is the Total Annual Inventory Cost for the company's current policy?
Correct Answer: A. $348.29
Explanation:
Given that: The Paint Supply Store franchise sells an average of 30 gallons of Red
Paint every week (for 52 weeks per year) i.e weekly demand = 30 gallons
Since 30 gallons is demanded weekly
Then annual demand for a year that contains 52 weeks = 30 × 52 = 1560
Order quantity = 70 gallons
, Thus; number of orders = annual demand for a year / order quantity number of
orders = 1560 /70 number of orders = 22.2857
Price per gallon = $2.00
Time to receive order = 1.25 weeks
Administrative cost Ordering paint (i.e ordering cost per order) = $15
The total Ordering cost per order = number of orders × ordering cost per order
The total Ordering cost per order = 22.2857 × 15
The total Ordering cost per order = $334.2855
Holding cost = 20% of the purchase price per gallon per year
Holding cost = 20/100 × $2
Holding cost = 0.2 × $2
Holding cost = $0.4 per unit per year ∴
The Inventory Holding cost = ( order quantity /2 ) × holding cost The Inventory
Holding cost = (70/2) × 0.4 The Inventory Holding cost = 35 × 0.4
The Inventory Holding cost = $14
Finally, Total Annual Inventory Cost for the company's current policy is :
Total Annual Inventory Cost = Total Ordering cost per order + Inventory Holding
cost Total Annual Inventory Cost = $334.2855 + $14
Total Annual Inventory Cost = $348.2855
