The Western Jeans Company purchases denim from Cumberland Textile Mills. The Western Jeans Company uses 35,000 yards of denim per year (365 days) to make jeans. The cost of ordering denim from the textile company is $500 per order. The carrying cost per yard of denim (C = H*C) is $0.35 per yard annually to hold a yard of denim in inventory.

Answer next three questions allowing planned shortage

Now, assume that this company allows shortages and that the annual cost per unit of shortages is $2.

Question 17

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Should it allow shortages, and what percent would be savings in total inventory cost?

Select one:

a. no, don't allow shortages, there is no savings.

b. yes, allow shortages. It would save almost 8% versus not allowing shortages.

c. yes, allow shortages. It would save almost 48% versus not allowing shortages.

d. no, don't allow shortages as inventory savings cannot be determined.

Question 18

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Again, assume that this company allows shortages and that the annual
cost per unit of shortages is $2. what percent of customers
will be on backorder?

Select one:

a. 15%

b. 0%

c. 50%

d. can't be determined.

Question 19

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Again, assume that this company allows shortages and that the annual
cost per unit of shortages is $2. And, allowing shortages,
if it takes Western Jeans Company 6 days to receive an order of
denim, at what level of inventory should the company reorder?

Select one:

a. when stock runs out

b. 575 yards

c. when it has 1039 yards of backorder

d. can't be determined