MAN 6501 Operations Management Mid Term Examination

Q 1: Consider a firm with a daily demand of 100 units, a production rate per day of 500 units, a setup cost of $200, and an annual holding cost per unit of $10. Suppose that the firm operates 300 days per year. How many units of inventory must their storage area be able to hold?

a) close to 975

b) close to 980

c) close to 1095

d) close to 1224

e) close to 1225

Q 2: If annual demand is 24,000 units, orders are placed every 0.5 months, and the cost to place an order is $50, what is the annual ordering cost?

a) 50

b) 600

c) 1200

d) 2400

e) Can not be determined

Q 3: If the Economic Order Quantity (EOQ) is ordered, which of the following is true?

a) Annual ordering cost exceeds annual holding cost.

b) Annual holding cost exceeds annual ordering cost.

c) Annual ordering cost is equal to annual holding cost.

d) The sum of annual ordering cost plus annual holding cost is maximized.

e) The annual holding cost curve is decreasing.

Q 4: The basic Economic Order Quantity (EOQ) model can be considered a special case of the

Economic Production Quantity (EPQ) model under which of the following condition?

a) The demand per day is greater than production per day.

b) The production rate per day approaches 0.

c) The production rate per day approaches infinity.

d) The back order cost approaches infinity.

e) d/p = 1, where d is the demand per day and p Is the production per day.

Q 5: If the Economic Order Quantity (EOQ) model is used to order material, which of the following

represents the total annual cost of ordering and holding?

Please note the following symbols.

D: Annual Demand, S: Ordering Cost/Order and H: Inventory holding cost per unit per year.

a) 2DS H

b) 2DH S

c) 2DSH

d) DSH

e) 2H SD

Q 6: A.K. Plywood Products offers the following all-units quantity discount schedule for its 4 feet

by 8 feet sheets of quality plywood.

Order Size Price

1-9 sheets $25

10-49 sheets $23

50-99 sheets $21

100 sheets or more $18

Miami Home Furnishings (MHF) orders plywood from A.K. Plywood Products. MHF s accounting

department determines an ordering cost of $50 per order and an annual inventory holding cost

percentage of 20% of the price of the item. The annual demand is 250 sheets. What should the

order size be every time that an order is placed to minimize total annual cost?

Q 7: Consider the data given in the following table and identify the appropriate category for item

Stock Number D in an ABC classification.

Item

Stcok

Number

Annual

Volume

(Units)

Unit Cost

A 1250 $92.00

B 335 $0.64

C 1970 $18.75

D 2430 $62.35

E 990 $13.80

F 680 $89.40

G 2150 $0.98

H 210 $9.80

I 1250 $0.52

J 970 $16.80

ABC Analysis

a) A

b) B

c) C

Q 8: A company is using the Economic Order Quantity (EOQ) model to manage its inventories.

Suppose its inventory holding cost per unit per year doubles while the annual demand and the

ordering cost per order do not change. What will happen to the EOQ?

a) It doubles.

b) It increases by 41.42%.

c) It remains the same.

d) The EOQ reduces by about 30%.

e) It quadruples (increases by 400%).

Q 9: The annual demand for an item is 2400 units. The inventory holding cost is $ 6.00 per

unit per year. The demand is continuous and constant, that is, 200 units/month. The item is

purchased in two lots. The size of the first lot is 1600 units and the size of the second lot is

800 units. Find the total annual cost of holding inventory.

a) 7200

b) 4000

c) 2400

d) 1200

e) 600

Q 10: A manufacturing company sells its products directly to customers and operates 5 days a week, 52 weeks a year. The production department of this company can produce at the rate of 60 units per day. The setup cost for a production run is $ 125.00. The cost of holding is $ 4.00 per unit per year. The demand for the item is continuous and constant and is 3,900 units per year. (Note: The demand occurs only when the company is operating, that is, 5 days a week for 52 weeks). Find the optimum number of units to be produced in one batch (economic production quantity). Round the number to nearest integer.

a) 3900 b) 570 c) 494 d) 300 e) 60