61.

A softdrinks distributor which buys in a pre-sell basis, is discussing with the route salesmen on the
proper cases to be ordered and the frequency of call. From the route book and other records, the
following are available: prior year’s purchases, 50,000 cases; carrying cost per case of inventory,
P1.20; distributor’s discount, 1 case for every 10 cases bought; cost of placing an order, P3.00;
weekly demand is approximately 962 cases. Safety stock required is 140 cases. No change in
demand is expected this year. (Use a 365-day, 52-week year).
Determine the economic order quantity (EOQ), and the reorder point assuming a two-day lead-
time.
A. B. C. D.
EOQ 250 cases 481 cases 500 cases 962 cases
Reorder point 280 cases 500 cases 414 cases 275 cases

62. If Ferry Company has a safety stock of 160 units and the average daily demand is 20 units, how
many days can be covered if the shipment from the supplier is delayed by 12 days?
A. 6.7 days C. 10.0 days
B. 8.0 days D. 12.0 days

63. Each stockout of Product AX sold by Axiom Inc. costs P87,500 per occurrence. The carrying cost
per unit of inventory is P250 per year, and the company orders 1,500 units of product 24 times a
year at a cost of P5,000 per order. The probability of stockout at various levels of safety stock is
Units of Safety Stock Probability of a stockout
0 0.50
100 0.30
200 0.14
300 0.05
400 0.01
The optimal safety stock level for the company is
A. 0 units. C. 300 units.
B. 100 units. D. 400 units.

64. Vera Cruz Corporation seeks to determine the quantity of safety stock for product ST that they
should maintain that will result in the lowest cost to the company. Each stockout will cost P600 and
the carrying cost of each unit of safety stock will be P8. Product ST will be ordered five times a
year. Which of the following will produce the lowest cost?
A. A safety stock of 15 units which is associated with a 35% probability of running out of stock
during an order period.
B. A safety stock of 25 units which is associated with a 25% probability of running out of stock
during an order period.
C. A safety stock of 35 units which is associated with a 10% probability of running out of stock
during an order period.
D. A safety stock of 75 units associated with a 5% probability of running out of stock during an
order period.

65. Arnold Enterprises uses the EOQ model for inventory control. The company has an annual
demand of 50,000 units for part number 101 and has computed an optimal lot size of 6,250 units.
Per-unit carrying costs and stockout costs are $13 and $3, respectively. The following data have
been gathered in an attempt to determine an appropriate safety stock level:
Number of Times Short
Units Short Because of Excess in the last 40 Reorder Cycles
Demand during the Lead Time Period
200 6
300 12