Operating Management

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1. Carrying costs include the following items, except:
a. labor
b. record keeping
c. rent
*d. all the above

2. Which of the following is not a cost associated with carrying inventory? *a. price discounts
b. carrying costs
c. ordering costs
d. shortage costs

3. The level of inventory at which a new order should be placed is known as the a. lead time
b. replenishment quantity
*c. reorder point
d. service level

4. A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate. If the cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00, then the optimal order quantity (EOQ) for napkins would be a. 62,500 boxes

b. 10,000 boxes
*c. 5,000 boxes
d. 2,500 boxes

Calculate the EOQ, Q* =sqrt [(2*D*CO )/CC] = sqrt [(2*62500*200)/1] = 5000

5. A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate. The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the restaurant orders the optimal (EOQ) number of boxes each time an order is placed, then the number of orders placed during the year would be *a. 12.5

b. 15
c. 20.25
d. 25

# of orders = D/Q* = 62500/5000 = 12.5

6. A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate over the 365 days that it is open. The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the restaurant orders the optimal order size then the time between orders (order cycle) would be a. 125 days

b. 75.3 days
c. 32.8 days
*d. 29.2 days
Time between orders = # of working days/# of orders = 365/12.5 = 29.2 days

7. A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate. The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the restaurant orders the optimal order size then the total annual inventory cost for napkins would be a. $62,500

*b. $5,000
c. $2,500
d. $1250

Total cost = (D/ Q*).CO + (Q*/2).CC = (62500/5000).200 + (5000/2).1 = $5,000

8. A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate. The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the restaurant orders the optimal order quantity size then the average inventory for napkins would be a. 62500 boxes

b. 31,250 boxes
c. 5,000 boxes
*d. 2,500 boxes

Average inventory = Q*/2 = 2500

9. Meeting demand fluctuations entirely by hiring and firing workers to match demand is an example of a(n) a. level production strategy
*b. chase demand strategy
c. mixed production planning strategy
d. optimal production planning strategy

10. The primary cost associated with the level production strategy is the *a. cost of holding inventory
b. cost of hiring and firing workers
c. cost of overtime
d. cost of subcontracting

11. If the lead time for reorders is 7 days with a EOQ system and the average daily consumption is 25 units, what should be the reorder point with this system? a. 25 units
b. 200 units
*c. 175 units
d. cannot be calculated given the information provided

Reorder Point = 25*7 = 175 units

12. The maximum inventory that can be attained with a EOQ system and an order quantity of 250 units is: *a. 250 units
b. 125 units
c. 0 units
d. cannot be calculated given the information provided

Since in the EOQ model, the inventory cannot be more than the EOQ itself, the maximum inventory can be 250 units

13. Sales and operations plans are usually determined based on which of the following time intervals? a. hours
b. days
c. weeks
*d. quarters

14. In a Sales and Operations Plan, the total demand forecast for the year is 120,000 units. What would be the production volume in each quarter if the level plan is...
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