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understanding management

Questions and Answers of Understanding Management

15. In case of multiple price breaks, once a feasible EOQ is determined, the total cost function is evaluated at the EOQ so determined and each of the points at which the breaks are available. The
16. With same inputs of annual demand, ordering/set up cost, and holding cost, the economic lot size in the build-up model is greater than economic order quantity in the classical EOQ model.Mark the
17. In the inventory model applicable to production runs, the production rate,p, must be greater than the demand rate, d.Mark the statement as T (True) or F (False).
18. An increase in set-up cost per production run leads to a decrease in the economic lot size.Mark the statement as T (True) or F (False).
19. For economic lot size, the total set-up cost need not be equal to the total holding cost.Mark the statement as T (True) or F (False).
20. It is permissible to incur both holding and shortage costs in the same inventory model.Mark the statement as T (True) or F (False).
21. The inventory model with planned shortages is applicable only when back-ordering is possible.Mark the statement as T (True) or F (False).
22. If back-ordering is allowed, the shortage cost can be an important cost component in the inventory model.Mark the statement as T (True) or F (False).
23. The total variable cost in the planned shortages model is split evenly between ordering cost on the one hand and holding cost and shortage cost on the other.Mark the statement as T (True) or F
24. The economic order quantity increases with an increase in the back-ordering cost.Mark the statement as T (True) or F (False).
25. The total variable cost for the planned shortages model would be greater than that for the classical EOQ model because of the inclusion of an additional component of shortage cost.Mark the
26. The economic order quantity for the planned shortages model would be greater than that for the classical EOQ model with the same input data.Mark the statement as T (True) or F (False).
27. As the holding cost becomes large in relation to the back-ordering cost, the number of units backordered would be large.Mark the statement as T (True) or F (False).
28. The four inventory models are deterministic in nature.Mark the statement as T (True) or F (False).
29. Under the assumptions made in the inventory models, the stock is always replenished at the designated time and no safety stock is needed.Mark the statement as T (True) or F (False).
30. A 100% customer service level requires an amount of safety stock determined as follows:Safety Stock= maximum DDL T - expected DDL T Mark the statement as T (True) or F (False).
31. Where demand during lead time is assumed to be normally distributed with a certain mean and standard deviation, the service level corresponding to a given safety stock level shall be equal to the
32. Both mean and standard deviation are necessary to be known for determining the service level corresponding to a given amount of safety stock, when the DDL T is given to be normally distributed.
33. The system of periodic reviews generally requires larger provisions for safety stock than does the fixed order quantity system. Mark the statement as T (True) or F (False).
34. The Ss system embodies the re-order feature of the fixed order quantity system and variable order quantity characteristic of the periodic review system. Mark the statement as T (True) or F
35. The Ss system requires high safety stock volumes. Mark the statement as T (True) or F (False).
36. In ABC analysis, the inventory items are classified into three categories on the basis of their usage quantities. Mark the statement as T (True) or F (False).
37. The A-category items are those which fall in steep-rise segment of the curve ofmal-distribution. Mark the statement as T (True) or F (False).
38. The VED analysis deals with classification of items on the basis of their availability. Mark the statement as T (True) or F (False).
39. HML classifies items accordingly as they are high-usage, medium-usage or low-usage. Mark the statement as T (True) or F (False).
40. FNSD is the speed classification of items, accordingly as they are fast-moving, normal-moving, slowmoving and dead items. Mark the statement as T (True) or F (False).
1. What are different types of inventories? Explain
2. What functions does inventory perform? State the two basic inventory decisions management must make as they attempt to accomplish the functions of inventory just described by you.
3. Distinguish between the fixed order quantity system and the periodic review system. Also explain the Ss system.
4. With the help of quantitY-cost curve, explain the significance of EOQ. What are the limitations of using the formula for an EOQ?
5. Discuss the assumptions underlying the basic EOQ formula. Also, state the economic order quantity model, discuss its sensitivity, and explain its major extensions.
6. (a) Give the different motives to keep inventory in an organisation. Do You consider hoarding as inventory?(b) Give the role of inflation and credit system in inventory management.
7. "Although the classical inventory decision model, known as the EOQ model, is too oversimplified to represent many of the real-world situations, it is an excellent starting point to develop more
8. (a) Explain, in detail, what constitutes the ordering cost and carrying cost. Draw a rough sketch to show the movement of these two cost curves in opposite directions with increase in the order
9. Discuss, in brief, the costs associated with inventory management. Derive the formula for EOQ, Q*.where, k = ordering cost per set-up h = holding cost of unit per time b = usage rate per unit of
10. In a certain manufacturing situation, the production is instantaneous and the demand per day is R.Show that the optimal order quantity q per run which minimises that total cost is,where, C1 is
11. What are the relevant costs for inventory decisions? How are they obtained in real life situations?
12. "An important characteristic of the EOQ model is the robustness which draws from the fact that the total cost curve is relatively flat at the bottom." In light of this, investigate the
13. 'EOQ models, however complex, are restricted by so many assumptions that they have very limited practical value.' Do you agree with this statement? Illustrate your answer.
14. (i) The annual demand for an item of inventory is D units, ordering costs are B rupees per order, transportation costs per order (irrespective of the number of units transported) is Trupees,
15. What is 'safety stock'? Why should it be kept by an organisation?
16. State whether the following statements are correct. Give reasons:(i) Safety stock increases as demand increases.(ii) In ABC analysis high cost items are most likely to fall in category A, and
17. Discuss the marginal analysis to the determination of the optimal ordering size. In what conditions is it employed?
18. Explain the basics of selective inventory control and state different selection techniques adopted in Inventory Control System. Give a brief note on each. (JCWA, December, 1983)
19. (a) "ABC analysis is a very useful approach for selective inventory control but has some major limitations."Do you agree with this statement? Explain how these limitations, if anY, can be
20. Define selective inventory control. Explain the ABC, VED, HML, SDE, S-OS, and FSN bases of inventory classification. Are they mutually exclusive?
1. A company has determined from its analysis of production and accounting data that, for a part number KC-438, the annual demand is equal to 10,000 units, the cost to purchase the item is Rs 36 per
2. A factory follows an economic order quantity system for maintaining stocks of one of its component requirements. The annual demand is for 24,000 units, the cost of placing an order is Rs 300, the
3. (a) For an item, the annual demand is known to be 3,000 units which is uniformly distributed over the year. The unit cost of the item is Rs 300 and the holding cost is 10% of the value. It costs
4. (a) Determine EOQ from the following data:(b) Now, if the annual requirement becomes as large as Rs 200,000 (i.e. 4 times the demand), would the EOQ become four times as large as obtained in (a)?
5. The following is the general information and information pertaining to a product component TT-4 used by Kay Engineering Works:Required:(a) calculate the EOQ for the component TT-4, (b) calculate
6. A company uses a certain component at the rate of 8,000 units per year. Each component part is valued at Rs 18. The company estimates that the cost of holding inventory is 20% of the value of the
7. The daily demand for a product is approximately 100 units. The ordering cost per order is Rs 100 and the average daily holding cost per unit is 2 paise. If the lead time is 14 days, determine the
8. Fill in the blanks:For your calculations, assume the number of working days in the year equal to 250. Item Annual demand Ordering cost Unit holding cost Lead time EOQ Re-order level (units) (Rs)
9. The annual demand of a particular item used by a company is 10,000 units. This item may be obtained from either an outside supplier or subsidiary company. The relevant data for the procurement of
10. The Heavy Nitro Company is considering the optimal batch size for re-order of concentrated sulphuric acid. The management has supplied the following information:The purchase price ofH2S04 is Rs 2
11. (a) Finance managers regularly deal with the problem of determining the optimal level of cash to keep in hand. Consider a company that has regular cash needs during a period. The problem for the
12. The Purchase Manager of Sigma Company is contacted by a new supplier who offers a quantity discount on an item KR-100 being used by the company. The ordering cost is Rs 80 per order and the
13. A purchase manager has decided to place an order for a minimum quantity of500 units ofa particular item of inventory in order to get a discount of 10%. Past records reveal that last year 8 orders
14. Obtain the optimal order quantity using the information given here:Annual requirement: 1 million units Ordering and processing cost: Rs 28.80 per order Holding cost: 20% of the unit cost Price
15. The annual demand for an item of inventory is 2400 units. The order processing costs amount to Rs 350 per order. Inventory holding costs are estimated to be 2 per cent per month of the value of
16. A shopkeeper has a uniform demand of an item at the rate of 50 units per month. He buys the item from the supplier at the cost of Rs 6 per unit and the cost of placing an order is Rs 10 every
17. The Honolulu Company has a contract to supply 5,000 units of an item per year to a dealer. For this item, the company estimates that the ordering cost is Rs 150 every time that an order is made
18. A manufacturing company of microwave ovens uses Rs 75,000 worth of LED readout circuits annually in its production process. Cost per order is Rs 45, and the carrying charge assessed against this
19. For one of the A-class items, the following data are available:The purchase manager has placed an order for 500 items in the beginning of the year availing 5%discount. At the beginning of the
20. (a) In respect of a component costing Rs 10 each, the annual demand is known to be 5,000 units. The cost of placing an order is Rs 200 and the total holding cost is 20% of the average inventory
21. An item sells for Rs 4 per unit but 10% discount is offered on lots of 150 units or more. A manufacturing unit that consumes this item at the rate of 20 items per day wants to decide whether or
22. The annual demand for a product is 1,00,000 units. The rate of production is 2,00,000 units per year.The set-up cost per production run is Rs 5,000 and the variable production cost of each item
23. A company is presently having a production run of 500 units every 3 months. He is considering a review of its production-lot size decision. The relevant information is given below:Would you
24. Kobo Bearing Limited is committed to supply 24,000 bearings per annum to Mis Deluxe Fans on a daily basis. It is estimated that it costs 10 paise as inventory holding cost per bearing per month
25. You are given the following information regarding the production-lot size of a particular product:Rising interest rates and other costs have caused a 10% increase in the annual holding costs.
26. The Clean-Well Company of India has introduced a new detergent KIN of which it can produce 20,000 packs per month of20 working days. The annual demand for this detergent is forecasted to be
27. Company A wants to know that production cost its major competitor, Company B, has assigned to product item P7• After a bit of investigation, Company A has collected the following data about
28. A manufacturer of food processors has annual sales of 20,000 units. The manufacturer operates 250 days a year and produces 200 units per day. The setup cost is Rs 600 for a production run. The
29. An item used by a company may be purchased from a supplier for Rs 32 per unit or manufactured in its plant at a rate of 10,000 units per annum, for Rs 30 per unit. If the item is purchased, the
30. A manufacturing company needs 2,500 units of a particular part every year. The company buys it at the rate of Rs 30 per unit. The cost of placing an order for the part is estimated at Rs 15 and
31. The demand of an item is uniform at a rate of 20 units per month. The fixed cost is Rs 10 each time a production run is made. The production cost is one rupee per item and the inventory carrying
32. (a) A retailer gets discount for large orders. The discount is 4 per cent if the quantity ordered is 500 or more, and an additional 1 per cent discount is received if the quantity ordered is
33. A furniture dealer sells special typist chairs. Each purchase order costs Rs 50 to the dealer and the holding costs amount to Rs 80 per chair per Year. The dealer sells 90 chairs per month. He
34. The manager of a company is facing an inventory problem with regard to an item whose demand is known to be evenly distributed with an annual value of 8,000 units. The cost of placing an order is
35. Using the relevant data from the following information, calculate economic order quantity and reorder level when (i) stockouts are not permitted, and (ii) when stockouts are permitted Uniformly
36. A dealer supplies you the following information with regard to a product dealt with by him:The dealer is considering the possibility of allowing some back-orders to occur for the product. He has
3 7. Higley Radio Components Company has a product for which the assumptions of the inventory model with backorders are valid. information obtained by the company is as follows:Calculate (i) economic
38. The annual requirement of a commodity is 3,000 units, the cost of placing an order is Rs 300 and the cost of carrying an item in inventory for one year is Rs 20.(a) Determine the EOQ.(b)
39. Obtain (i) Economic Order Quantity, (ii) Number of orders, (iii) Re-order level, (iv) Safety stock, for the following inventory problem: Annual demand = 36,000 units Cost per unit = Re 1 Ordering
40. The daily demand for an electronic machine is approximately 25 items. EverYtime an order is placed, a fixed cost of Rs 25 is incurred. The daily holding cost per item inventory is Re 0.40. If the
41. A company purchases a component from another factory. Based on the past records, the EOQ for the component is 3,600 units, with an average usage of50 units a day. The normal lead time is 6 days
42. A company is using fixed-order quantity system of inventory management. For one of the items, the re-order quantity is 400 units and the re-order level is 350 units. The weekly demand of the
43. The daily demand for a component assembly items is normally distributed with a mean of 90 and a standard deviation of 10 units. Further, the source of supply is dependable and maintains a
44. (a) The following information relates to the Beta company:Units required per annum = 30,000 Cost of placing an order = Rs 400 Carrying cost = Rs 600 per unit per annum.Assuming that the demand
45. Auto Care Limited provides several auto parts to local garages in a small city. The company purchases parts from manufacturers in accordance with the EOQ model and sends the parts from its
46. A firm with an annual demand of approximately 3,000 units has an ordering cost of Rs 30 per order and a holding cost of Rs 8 per unit per year. The demand exhibits some variability such that the
4 7. An item is ordered by New Star Manufacturing Company in quantities of five thousand units at a time.The cost price of the item is Rs 4 per unit. The average weekly demand for this item is 400
48. The distribution oflead time in respect of a certain component is given in the following table:The management of the company wishes to set safety stock level that would ensure that the risk of
49. The daily demand of an item VP-100 is known to be normally distributed with a mean of 20 units and MAD of 5 units. For the item, the lead time is 9 days. You are required to determine:(a) the
50. A company uses a component for which its forecast of usage is normally distributed with MAD= 40 units. The company management adopts a policy which limits the stockouts to be no more than one
51. A ship building company has launched a programme for the construction of a new class of ships.Certain spare units like prime mover, each costing Rs 2,00,000 have to be purchased. If these units
52. The following information is known about a group ofitems. Classify the materials in ABC classification: Model No. Annual consumption (in pieces) Unit price (in paise) 501 30,000 10 502 503
53. What is selective inventory control? From the following details, draw a plan of ABC selective control Item Units ('000): : 1 2 3 4 5 6 7 89 10 11 12 7 24 1.5 0.6 38 40 Unit cost : 5 3 10 22 1.5
54. Ten items kept in inventory by the School of Management Studies at State University are listed below.Which items should be classified as 'A' items, 'B' items and 'C' items? What percentage of

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