The cost of keeping too much inventory
a. Holding Cost
b. Ordering Cost
c. Stockout Cost
d. Cost
The cost of business everytime it placed an order to buy a new inventory.
a. Holding Cost
b. Ordering Cost
c. Stockout Cost
d. Cost
The cost of running out inventory
a. Holding Cost
b. Ordering Cost
c. Stockout Cost
d. Cost
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Given:
Demand/year = 150,000 units
Lead time = 3 days
Operating Days = 300 days
Holding Cost = Php 8.00
Ordering Cost = Php 50.00
Requirement:
Find the Minimum Total Cost Order Quantity, Total Cost, and Reorder Point.
Minimum Total Cost Order Quantity
Q*= √2 (150,000) (50)/8
= 1, 369 units
Total Cost = 1/2Q (8)+150,000/Q (50)
= 4Q+ 7,500,000/Q
= (1,369)(40) + 7,500,000/1,369
= Php 60, 239
Reorder Point = (150,000/300 days) = 500 units per day
= (500 units/day) (3 days)
= 1,500 units
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It is a formula that calculates minimum possible cost by summing annual purchasing,
ordering and holding cost
A. Economic Production Lot Size Model
B. Total Cost
C. Average Cost
D. Maximum Inventory
It is a model useful for company to know how much to produce and when to produce
A. Economic Production Lot Size Model
B. Total Cost
C. Average Cost
D. Maximum Inventory
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Safety Stock 1. The difference between your target Reorder Point (r) and the
Average Demand
Probabilistic Inventory Model. 2. This model is essential for any business operating
in the real world, where customer demand is always unpredictable.
Lead Time 3. ____ is the time the vendor takes to process, ship, and deliver your
order.
_________________________________________________
A ____ is a demand that cannot be supplied.
A. Shortage
B. Surplus
C. Stack
D. Shop
Answer : A
The maximum inventory.
A. Q-S
B. S-Q
C. Q+S
D. Q×S
Answer : A
________________
1. The cost of ordering too many units in a single-period model is called ____.
A. Underestimation cost
B. Overestimation cost
C. Holding cost
D. Operating cost
Answer: B
2. The formula used to find the optimal order quantity Q* is based on the critical
ratio ____.
A. Co/Cu+Co
B. Cu/Cu+Co
C. Cu - Co
D. Co - Cu
Answer: B
3. In the single-period model, demand is usually treated as ____.
A. Constant and fixed
B. Variable but known
C. Probabilistic or uncertain
D. Always increasing
Answer: C
___________________
In a periodic review inventory system with probabilistic demand, what does the
replenishment level represent?
A. The minimum inventory level that triggers an order
B. The fixed quantity ordered every review period
C. The target inventory position after an order is placed, designed to cover expected
demand and demand uncertainty during the protection period
D. The average demand per review period only
Correct Answer: C
A grocery store uses a periodic review system with a replenishment level of 2,450
units. At the time of review the on-hand inventory is 1,300 units.
How many units should the store order?
A. 1,290 units
B. 1,150 units
C. 1,410 units
D. 1,550 units
Correct Answer: B
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3-Point Problem (Quantity Discounts – EOQ Model)
A supplier offers the following discount schedule:
0–799 units: ₱12.00 per unit
800–1,999 units: ₱11.60 per unit
2,000+ units: ₱11.40 per unit
Annual demand is 4,800 units.
Ordering cost is ₱50 per order.
Holding cost rate is 25% of the unit price.
Question:
What is the optimal order quantity using the EOQ with quantity discounts model?
Answer (Solution)
Step 1: Compute Holding Cost (Ch)
Ch = 0.25 × C
Level 1: 0.25 × 12.00 = 3.00
Level 2: 0.25 × 11.60 = 2.90
Level 3: 0.25 × 11.40 = 2.85
Step 2: Compute EOQ for each level
EOQ = √(2DC₀ / Ch)
Level 1: √(2×4800×50 / 3.00) = 400
Level 2: √(2×4800×50 / 2.90) = 407
Level 3: √(2×4800×50 / 2.85) = 412
Step 3: Adjust EOQ for discount minimums
Level 1 → 400 (valid)
Level 2 → 800 (adjusted up)
Level 3 → 2000 (adjusted up)
Step 4: Compute Total Annual Cost
TC = (Q/2)Ch + (D/Q)C₀ + D×C
Level 1: Q = 400
TC₁ = (400/2)(3.00) + (4800/400)(50) + (4800)(12.00)
TC₁ = 600 + 600 + 57,600 = ₱58,800
Level 2: Q = 800
TC₂ = (800/2)(2.90) + (4800/800)(50) + (4800)(11.60)
TC₂ = 1,160 + 300 + 55,680 = ₱57,140
Level 3: Q = 2000
TC₃ = (2000/2)(2.85) + (4800/2000)(50) + (4800)(11.40)
TC₃ = 2,850 + 120 + 54,720 = ₱57,690
Final Answer
The optimal order quantity is 800 units, because it gives the lowest total annual cost
(₱57,140).