test bank for operations management 11th edition by krajewski · test bank for operations...

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Test Bank For Operations Management 11th Edition By Krajewski

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Solutions Manual for Operations Management Processes And Supply

Chains 11th Edition by Lee J. Krajewski, Manoj K. Malhotra, Larry P.

Ritzman

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Operations Management, 11e (Krajewski et al.)

Supplement C: Special Inventory Models

C.1 Noninstantaneous Replenishment

1) The economic production lot size represents the maximum quantity of on-hand inventory for a

manufacturer.

Answer: FALSE

Reference: Noninstantaneous Replenishment

Difficulty: Moderate

Keywords: noninstantaneous replenishment

Learning Outcome: Compare the advantages and disadvantages of common inventory systems

2) For analysis using the economic production lot size (ELS) model to be useful, the producer

must be able to produce the item faster than it is consumed.

Answer: TRUE





AACSB: Analytical Thinking

3) Consider a noninstantaneous replenishment situation in which the production rate is 100 units

per day, the demand rate is four units per day, and the economic production lot size is 500 units.

Which of the following statements is TRUE?

A) The average cycle inventory is fewer than 225 units.

B) The average cycle inventory is greater than 300 units.

C) The rate of buildup in cycle inventory during the production cycle is fewer than 100 units per

day.

D) The rate of buildup in cycle inventory during the production cycle is greater than or equal to

400 units per day.

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Answer: C






3

Scenario C.1 Jerry Allison is in charge of production for a small producer of plumbing supplies. The cricket

model has an estimated annual demand of 12,000 units and can be produced at a production rate

of 90 units per day. The company produces (and sells) the cricket 300 days per year. Setup cost

to produce this model averages $22 and the item has a holding cost of $3 per unit per year.

4) Use the information in Scenario C.1. What is the economic production lot size (ELS)?

A) fewer than or equal to 400 units

B) greater than 400 units but fewer than or equal to 480 units

C) greater than 480 units but fewer than or equal to 500 units

D) greater than 500 units

Answer: D






5) Use the information in Scenario C.1. How many production runs per year are needed if Jerry

chooses to produce at his economic production lot size (ELS)?

A) fewer than or equal to 10 runs

B) greater than 10 runs but fewer than or equal to 20 runs

C) greater than 20 runs but fewer than or equal to 30 runs

D) greater than 30 runs

Answer: C






6) Use the information in Scenario C.1. If Jerry chooses to produce batches dictated by the

economic production lot size (ELS) model, how many days elapse between the start of

consecutive production runs (what is the time between runs or TBO)?

A) fewer than or equal to 8 days

B) greater than 8 days but fewer than or equal to 10 days

C) greater than 10 days but fewer than or equal to 12 days

D) greater than 12 days

Answer: D






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7) Use the information in Scenario C.1. What is the maximum inventory if Jerry chooses to

produce at the economic production lot size (ELS)?





Answer: B






8) Use the information in Scenario C.1. If Jerry chooses to produce the batch size suggested by

the economic production lot size (ELS) model, what is the annual cost?

A) less than or equal to $900

B) greater than $900 but less than or equal to $950

C) greater than $950 but less than or equal to $1000

D) greater than $1000

Answer: B






9) Consider a manufacturer that uses the economic production lot size (ELS) model. What must

be the relationship be between production rate and demand rate for the producer to spend double

the time in the production and demand portion of the inventory cycle than they spend in only the

demand portion of the inventory cycle?

A) p = 1.5d

B) p = d

C) 2p = d

D) p = 2d

Answer: A






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be the relationship be between production rate and demand rate for the producer to spend exactly

the same time in the production and demand portion of the inventory cycle as they spend in only

the demand portion of the inventory cycle?

A) p = d

B) p = 0.5d

C) p = 2d

D) p = 1.5d

Answer: C






11) The time between orders is given by the formula ELS/D. What is the significance of its

inverse, D/ELS?

A) the number of orders per year

B) the time between consuming an order

C) the ratio of demand only to production and demand cycles

D) the ratio of the maximum inventory to the production quantity

Answer: A







the relationship be between production rate and demand rate for the producer to realize a

maximum inventory that is exactly two-thirds of their lot size?

A) p = 2d

B) p = 0.5d

C) p = 0.33d

D) p = 3d

Answer: D






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13) Warren's Ice Cream makes 4 different flavors of ice cream using their secret process and top

secret recipes. Each of their flavors is equally popular and experiences a demand of 5,000

gallons/year. Warren's process is capable of producing 100 gallons/day once they incur the $25

setup cost. The ice cream holding cost is 10% of the $5 per gallon price. Warren's plant runs 250

days a year and stays busy doing so, but management feels they can add another flavor to their

product line and increase their revenue. Which of the following statements is appropriate for this

scenario?

A) Warren's can comfortably add a fifth flavor without increasing the number of days they

operate.

B) Warren's cannot add the fifth flavor because the holding cost would increase.

C) Warren's can add the fifth flavor only if there is zero setup time between flavors.

D) Warren's cannot add the fifth flavor because demand would exceed capacity.

Answer: C


Difficulty: Hard




14) In a noninstantaneous replenishment model, as the daily demand approaches the daily

production rate, the:

A) number of production runs per year decreases.

B) length in days of a production run increases.

C) economic lot size increases.

D) time between production runs decreases.

Answer: D






15) The ________ is the optimal lot size in situations in which replenishment is not

instantaneous.

Answer: economic production lot size, ELS





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16) A manufacturer produces aluminum cans internally rather than purchasing them and uses the

economic production lot size equation to govern this process. The length of time that the

aluminum can batch runs is given by the equation ________ and the time between the start of

one batch of cans to the next is found by the equation ________.

Answer: ELS/p, ELS/d


Difficulty: Hard




17) The pile of inventory accumulated in an economic production lot size situation is ________

than the lot size dictated by the ELS calculation.

Answer: smaller


Difficulty: Hard




18) In an economic production lot size situation, the production rate is always ________ than the

demand rate.

Answer: greater





19) In an economic production lot size situation, the producer is producing half the time if the

ratio of production rate to demand rate is ________.

Answer: 2:1


Difficulty: Hard




20) Briefly explain why the economic production lot size (ELS) is actually larger than the EOQ

when there are noninstantaneous replenishments.

Answer: The cycle inventory is less than Q/2, which reduces the annual holding cost of ordering

Q units. Thus, a larger order quantity is justified.






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21) Sketch the economic production lot size (ELS) graph of inventory level as a function of time

and label all elements of the graph.

Answer:






22) A production manager is making a decision on batch size for a product with an annual

demand of 25,000 units per year. The setup cost for each batch is $45 and once the setup is

complete, the product may be produced at the rate of 650 units per day. There is a holding cost of

$2 per unit per year and the plant operates on a 250-day production year. How big should the

production batch be and how long (in days) will it take to produce the batch?

Answer:

ELS = = = 1,153 units

Production time = = = 1.77 days






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23) Walter White must satisfy an annual demand of 50,000 pounds per year. The setup cost for

each batch is $6500 and once the setup is complete, the product may be produced at the rate of

1800 pounds per day. There is a holding cost of $15 per unit per year and the plant operates on a

350-day production year. How big should the production batch be and how long (in days) will it

take to produce the batch?

Answer:

ELS = = = 6,860.68 pounds







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24) Walter White must satisfy an annual demand of 50,000 pounds per year. The setup cost for

each batch is $6500 and once the setup is complete, the product may be produced at the rate of

1800 pounds per day. There is a holding cost of $15 per unit per year and the plant operates on a

350-day production year. Determine the relevant parameters and sketch the inventory cycle

through two complete cycles, labeling all lines and vertices.

Answer:

ELS = = = 6,860.68 pounds

= (p - d)

= (1800 - 142)

= 6316 pounds







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25) A production manager uses the economic lot size approach to determine the batch size for a

product with an annual demand of 20,000 units per year. The setup cost for each batch is $50 and

once the setup is complete, the product may be produced at the rate of 800 units per day. There is

a holding cost of $2 per unit per year and the plant operates on a 250-day production year. If the

machine used to produce this product is needed for another item and it takes one day to set up

regardless of product, how many production days are available for production of the new item?

Answer:

ELS = = = 1,054 units


Time Between Orders = = = 13.175 days

Available time = 13.175 days - 1,3175 days - 2 × (1 day) = 9.8575 days per cycle

= 18.97 cycles/year ≈ 19 cycles/year

19 cycles/year × 9,8575 days/cycle = 187.29 days/year






C.2 Quantity Discounts

1) When facing quantity discounts, the EOQ found with the lowest price level is always the

lowest total cost plan.

Answer: FALSE

Reference: Quantity Discounts

Difficulty: Easy

Keywords: quantity discount


AACSB: Application of Knowledge

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2) A pencil supplier just introduced quantity discounts. The price schedule follows.

Order Quantity Price per Unit

000 - 199 $4.00

200 - 399 $3.75

400 and more $3.50

XYZ store's annual demand remains at 350 units and ordering cost at $2 per order. If annual

holding cost is 30 percent of the pencils' per-unit price, what order quantity should XYZ select to

minimize all costs?





Answer: C






3) Which one of the following statements about quantity discounts is BEST?

A) The minimum cost point on each price curve is always feasible.

B) A price break is the maximum quantity needed to get a discount.

C) If the EOQ for the lowest price is feasible, this is the best lot size.

D) Either price or quantity is sufficient for the search for the best lot size.

Answer: C






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4) As an inventory manager, you must decide on the order quantity for an item. Its annual

demand is 350 units. Ordering cost is $20 each time an order is placed, and the holding cost is 30

percent of the per-unit price. Your supplier provided the following price schedule.

Price per Unit Order Quantity

$4.00 000 - 199

$3.75 200 - 399

$3.50 400 and more

What is the annual cost discrepancy between the optimal order policy and the second best order

policy?

A) Less than $5

B) Between $5 and $10

C) Between $10 and $20

D) More than $20

Answer: B






5) When faced with a quantity discount situation, the first EOQ should be calculated using the

________ price.

Answer: lowest






6) Why are there discontinuities (areas where the curve jumps up or down and is not smooth) in

the total cost curve in the quantity discount model?

Answer: The total cost curve has breaks due to the price breaks. Reading the total cost curve

from left to right, when purchase quantities reach a price break, an increase in one unit will

trigger a per-unit decrease in price for all units in the order, which accounts for the reduction in

total cost.






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demand is 1,000 units. Ordering costs are $50 each time an order is placed, and the holding cost

is 25 percent of the per-unit price. Your supplier provided the following price schedule.

Quantity Price per Unit

1 - 199 $10.00

200 - 499 $ 9.80

500 or more $ 9.60

What ordering-quantity policy do you recommend?

Answer: Start at lowest cost

Therefore, the best order size is 202, with a cost of $10,295.






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demand is 679 units. Ordering costs are $7 each time an order is placed, and the holding cost is

10% of the unit cost. Your supplier provided the following price schedule.

Quantity Price per Unit

1 - 100 $5.65

101 - 350 $4.95

351 or more $4.55

What ordering-quantity policy do you recommend?

Answer: Start at lowest cost

EOQ4.55 = = = 144.54, not feasible

Solve for next lowest cost

EOQ9.80 = = = 139, feasible

Compare costs at the feasible 139 and at the lower cost for discount at 351

C139 = H + S + PD = (.10)4.95 + (7) + 4.95(679) = $3,429.47

C351 = H + S + PD = (.10)4.55 + (7) + 4.55(679) = $3,182.84

Therefore, the best order size is 351, with a cost of $3,182.84.






C.3 One-Period Decisions

1) If demand exceeds the order quantity in a single period situation, then the payoff is simply the

order quantity times the per unit profit.

Answer: TRUE

Reference: One-Period Decisions

Difficulty: Easy

Keywords: single period model



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2) In a one-period inventory model, the after-season sales price may be zero.

Answer: TRUE





3) In a one-period inventory model, the higher the after-season sales price, the higher the order

placed at the start of the season.

Answer: TRUE






4) In a one-period inventory model, the more profitable the item during the sales season, the

manager should place a higher order at the start of the season.

Answer: TRUE






5) The closer the in-season and after season sales price are, the lower the order placed at the start

of the season.

Answer: FALSE






6) Use of the the single-period model will maximize profit in every season.

Answer: FALSE


Difficulty: Easy




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Scenario C.2 Egan Schranz sells Klammelhoffer skis out of his store in the Alps. The store makes a $75 profit

per unit sold during the ski season, but it will take a $25 loss per unit if sold after the season is

over. The following discrete probability distribution has been estimated for the season's demand.

Demand (D) Demand Probability

20 0.1

40 0.2

60 0.3

80 0.3

100 0.1

7) Use the information in Scenario C.2. What is the payoff with an order quantity (Q) of 80 units

if the demand (D) is 60 units?

A) less than or equal to $3,000

B) greater than $3,000 but less than or equal to $4,000

C) greater than $4,000 but less than or equal to $5,000

D) greater than $5,000

Answer: B






8) Use the information in Scenario C.2. What is the best order quantity?

A) 20 units

B) 40 units

C) 60 units

D) 80 units

Answer: D






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Scenario C.3 Consider an item with the following discrete demand distribution for a one-period inventory

decision.

Demand (D) Demand Probability

10 0.15

20 0.20

30 0.30

40 0.20

50 0.15

This item experiences a seasonal demand pattern. A profit of $15 per unit is made if the item is

sold in season, but a loss of $10 per unit is incurred if the item is sold after the season is over.

9) Use the information in Scenario C.3. What is the payoff when 40 units are ordered but a

demand of 50 materializes?

A) $150

B) $300

C) $450

D) $600

Answer: D






10) Use the information in Scenario C.3. What is the payoff when 40 units are ordered but a

demand of 30 materializes?

A) $0

B) $100

C) $350

D) $450

Answer: C






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11) Use the information in Scenario C.3. What is the order quantity with the highest expected

payoff?

A) 20 units

B) 30 units

C) 40 units

D) 50 units

Answer: B






12) A world traveler prepares to leave the comforts of home for a back to nature visit to

Gilligan's Island, where all transactions are conducted in coconuts and the banking system is

completely undeveloped. The traveler can buy coconuts for $2 each before the journey. If he

fails to bring enough coconuts with him and runs out, he must get some coconuts flown in at a

cost of $5 each. If he finishes his vacation and has leftover coconuts he can cash them in when he

returns home, but will receive only $1.50 per coconut. What is his loss per unit if he overstocks

on coconuts prior to leaving home?

A) $0.50

B) $1

C) $3.50

D) $4.50

Answer: A


Difficulty: Easy




13) Which of these statements about the one-period model is BEST?

A) Purchasing a quantity with the highest expected payoff will result in a positive payoff

regardless of the actual demand during the period.

B) The loss per unit cannot exceed the profit per unit.

C) If demand exceeds the purchased quantity then the actual payoff exceeds the expected payoff

for that quantity.

D) The expected payoff for a purchase quantity is always less than the actual payoff for that

quantity.

Answer: C


Difficulty: Easy



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14) The need for one-time inventory decisions also can arise in manufacturing plants when

________ items are made to a single order and ________ are high.

Answer: customized, scrap quantities


Difficulty: Hard



15) In a single period model, if purchase quantity Q exceeds demand rate D, then the number of

units sold after the season is ________.

Answer: Q-D


Difficulty: Easy




16) In a single period model, if the in-season demand is unexpectedly high, then the profit can be

calculated as ________.

Answer: pQ


Difficulty: Easy




17) When do one-period decisions on inventory arise in practice?

Answer: The one-period inventory models are appropriate when retailers handle seasonal goods

that must be sold at a reduced price after the selling season. For manufacturing situations, it can

arise when customized products are made and scrap rates are high.





18) Pick any three products that occupy both extremes and the midpoint of the one-period model

continuum. Explain why the products occupy these positions and identify the ideal inventory

model for determining the best order quantity or each.

Answer: Examples will vary, but the pure single-period product should use a single-period

model. The example demand not bound by any season may be ordered using EOQ, POQ or some

other model.





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19) Explain why in any given season, the one-period decision model may result in a poor choice

for a stocking level?

Answer: The one-period inventory models are appropriate when decision makers handle

seasonal goods that must be sold at a reduced price after the selling season. The model is based

on expected values, i.e., the probability of experiencing demand at a certain level, perhaps based

on historical data. If the data are highly variable, then there is a chance that demand may be

unusually high or low, particularly in a "fashion" setting. A design that catches the public's fancy

may experience high demand that exceeds the stocking level and the retailer will stock out and

fail to realize all the sales that might have been possible. Conversely, a dog of a design may

leave the retailer with excess inventory on the shelves. If this stocking game is played season

after season, profit will be maximized, but any one season may have a different outcome.





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20) A newsstand is trying to determine how many bundles of newspapers to stock. For each

bundle, the newsstand makes $20. However, they lose $5 per bundle if they do not sell. The

following discrete probability distribution has been estimated for their daily demand. How many

bundles should they stock?

Demand

(bundles) Probability

4 .10

5 .20

6 .30

7 .30

8 .10

Answer:






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