Pregunta 1

1.1. As we saw in the lecture, every inventory replenishment model has to make some
assumptions.

Can you identify which of the following are assumption(s) for the basic economic order
quantity (EOQ) model? You may select more than one response.

Constant and stable demand.

Multiple locations.
Unlimited capacity.
Infinite planning horizon.
Lost orders.
Non-perishable items

1.2 The Economic Order Quantity model essentially makes a trade-off between ordering costs
(fixed costs per order) and inventory holding costs (variable costs per item held).
Which of the following statement(s) are TRUE? You may select more than one response.

As the order quantity is increased, the holding costs will increase. T As the
order quantity is increased, the ordering costs will increase. F
The point where the order quantity is an optimum occurs when inventory holding costs
equals ordering costs. T
The ordering costs are a linear function with respect to order quantity. F
Pregunta 2.
Suppose you have a product with very stable demand of 1,200 units per year. The ordering
cost is $100 per order, the cost of the item is $10 per unit, and the cost of carrying
inventory is 10% per annum. You sell this product to your customers for
$17.50 per unit.
2.1 What is the economic order quantity (EOQ) or Q* in units? Round up to the
nearest integer value. (R. 490)

2.2 What is the value of Q* in dollars? Round up to the nearest integer dollar value and do
not enter a dollar sign. (R. 4900)

2.3 Sometimes, the amount of inventory is described in terms of how long it would last
with the existing demand, e.g., weeks of supply or months of supply. What is Q* in terms of
Months of Supply? Enter your answer with two significant digits. (R. 5)

2.4 What is the optimal order cycle time in days? Answer to the nearest integer value.
(R. 147-149)

2.5 Suppose that the shipment pallets are sized such that the orders have to be in
multiples of 50 units. What is the new EOQ in Units? (R. 500)
Pregunta 3.
You are the inventory control manager for a large firm. At the annual planning session, you
are setting the inventory policy for your major items. While doing this, you realize that it is
difficult to accurately estimate the actual cost for placing an order. Therefore, to be on the
safer side, you decide to set the actual order quantity at 25% more than the computed
economic order quantity.

3.1 By how much (in percentage) will the new Total Relevant Cost be different from the
optimal TRC*? Enter your answer as a decimal between 0 and 1 with 3 significant digits.
For example, for 32.12% enter 0.321. (R. 0.80)

3.2 You realize that the actual demand is 25% MORE than forecasted demand. By what
percentage will the new TRC be different from the optimal TRC*? Enter your answer as a
decimal between zero and one, e.g., for 32.12% enter 0.3212. (R. 1.0062)

3.3 Suppose now you realize that the actual demand is 25% LESS than forecasted demand.
By what percentage will the new TRC be different from the optimal TRC*? Enter your
answer as a decimal between zero and one, e.g., for 32.12% enter 0.3212. (R. 1.0104)
Pregunta 4.

4.1 The "power of two" policy does which of the following things? You may select
more than one.

Seeks to synchronize the ordering of various items.

Keeps TRC within 6% of the optimal.
Finds the lowest TRC for each item
None of the above

4.2 You are managing the inventory for an item valued at $100 per unit. It costs about $300
to place an order due to employee salaries and the system costs. The annual demand is
27,500 units per year and you have a holding cost rate is 24% per year.

4.2.a. What is the economic order quantity Q* in units for this item? Round up to the next
highest integer value. (R.830)

4.2.b What is the optimal order cycle time in weeks for this item? Assume 52 weeks in the
year and use three significant digits, that is, if your answer is 3.4567, enter
3.46. (R. 1.57)

4.2.c You have decided that it makes no sense to place an order at the frequency. Suppose
you want to place an order every Monday morning. What would your order quantity be each
week assuming a 52 week year? Round up to the nearest integer value. (R. 529)

4.2.d. How much more is your new policy of ordering once a week going to cost you in
dollars per year as compared to the optimal order frequency? Round up to the next highest
integer value, and use the solutions to previous problems for values of Q and Q*. (TRC =
2053)

4.2.e You want to continue to order on only Mondays. However, you are considering
ordering on periodic Mondays.
Which of the following ordering policies would produce the lowest total relevant cost?

Order every Monday

Order every other Monday (~ every 2 weeks)
Order the first Monday of the Month (~ every 4 weeks)
Order the first Monday of every other Month (~ every 8 weeks)
Order when the moon is full
It does not matter since the order cycle time does not impact cost