Prairie Dunes Co. issues bonds dated January 1, 2011, with a par value of $890,000. The bonds’ annual contract rate is 12%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 10%, and the bonds are sold for $935,160.

1. What is the amount of the premium on these bonds at issuance? (Omit the "$" sign in your response.)

Premium $

2. How much total bond interest expense will be recognized over the life of these bonds? (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

Total bond interest expense $

3. Prepare an amortization table for these bonds; use the straight-line method to amortize the premium.(Make sure that the unamortized premium is adjusted to "0" and the carrying value equals to face value of the bond in the last period. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Semiannual

Interest

Period-End Unamortized

Premium Carrying

Value

1/01/2011 $

$

6/30/2011

12/31/2011

6/30/2012

12/31/2012

6/30/2013

12/31/2013

________________________________________

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Exercise 10-3B Effective interest amortization of bond discount L.O. P2

Welch issues bonds dated January 1, 2011, with a par value of $249,000. The bonds’ annual contract rate is 10%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 12%, and the bonds are sold for $236,765.

1. What is the amount of the discount on these bonds at issuance? (Omit the "$" sign in your response.)

Discount $

2. How much total bond interest expense will be recognized over the life of these bonds? (Omit the "$" sign in your response.)

Total bond interest expense $

3. Use the effective interest method to amortize the discount for these bonds. (Make sure that the unamortized discount equals to "0" and the Carrying value equals to face value of the bond in the last period. Bond interest expense in the last period should be calculated as Cash interest paid (+) Discount amortized. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Semiannual Interest

Period-End (A)

Cash Interest

Paid (B)

Bond Interest Expense (C)

Discount Amortization (D)

Unamortized Discount (E)

Carrying

Value

1/01/2011 $

$

6/30/2011 $

$

$

12/31/2011

6/30/2012

12/31/2012

6/30/2013

12/31/2013

________________________________________ ________________________________________ ________________________________________

Total $

$

$

________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________

________________________________________

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Exercise 10-9 Computing bond interest and price; recording bond issuance L.O. P2

Jester Company issues bonds with a par value of $590,000 on their stated issue date. The bonds mature in 5 years and pay 9% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 12%. (Use Table B.1, Table B.3)

1. What is the amount of each semiannual interest payment for these bonds? (Omit the "$" sign in your response.)

Semiannual interest payment $

2. How many semiannual interest payments will be made on these bonds over their life?

Number of payments

3. Use the interest rates given to select whether the bonds are issued at par, at a discount, or at a premium.

at a premium.

at par.

at a discount.

4. Compute the price of the bonds as of their issue date. (Round "PV Factors" to 4 decimal places. Round intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Issue price of bonds $

5. Prepare the journal entry to record the bonds’ issuance. (Round "PV Factors" to 4 decimal places. Round intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

General Journal Debit Credit

________________________________________

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Exercise 10-5B Effective interest amortization of bond premium L.O. P3

Prairie Dunes Co. issues bonds dated January 1, 2011, with a par value of $740,000. The bonds’ annual contract rate is 13%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 12%, and the bonds are sold for $758,222.

Prepare an amortization table for these bonds using the effective interest method to amortize the premium.(Make sure that the unamortized premium equals to '0' and the Carrying value equals to face value of the bond in the last period. Bond interest expense in the last period should be calculated as Cash interest paid (−) Premium amortized. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Semiannual

Interest

Period-End (A)

Cash Interest

Paid (B)

Bond Interest

Expense (C)

Premium Amortization (D)

Unamortized

Premium (E)

Carrying

Value

1/01/2011 $

$

6/30/2011 $

$

$

12/31/2011

6/30/2012

12/31/2012

6/30/2013

12/31/2013

________________________________________ ________________________________________ ________________________________________

Total $

$

$

________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________

Exercise 10-1 Recording bond issuance and interest L.O. P1

On January 1, 2011, Kidman Enterprises issues bonds that have a $1,300,000 par value, mature in 20 years, and pay 7% interest semiannually on June 30 and December 31. The bonds are sold at par.

1. How much interest will Kidman pay (in cash) to the bondholders every six months? (Do not round intermediate calculations. Omit the "$" sign in your response.)

Semiannual cash interest payment $

2. Prepare journal entries for the following.

(a) The issuance of bonds on January 1, 2011. (Omit the "$" sign in your response.)

Date General Journal Debit Credit

Jan. 1, 2011

________________________________________

(b) The first interest payment on June 30, 2011. (Do not round intermediate calculations. Omit the "$" sign in your response.)

Date General Journal Debit Credit

June 30, 2011

________________________________________

(c) The second interest payment on December 31, 2011. (Do not round intermediate calculations. Omit the "$" sign in your response.)

Date General Journal Debit Credit

Dec. 31, 2011

________________________________________

3. Prepare the journal entry for issuance of bonds assuming.

(a) The bonds are issued at 96. (Omit the "$" sign in your response.)

Date General Journal Debit Credit

Jan. 1, 2011

________________________________________

(b) The bonds are issued at 104. (Omit the "$" sign in your response.)

Date General Journal Debit Credit

Jan. 1, 2011

________________________________________

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Exercise 10-15 Installment note entries L.O. P5

On January 1, 2011, Randa borrows $21,000 cash by signing a four-year, 5% installment note. The note requires four equal total payments of accrued interest and principal on December 31 of each year from 2011 through 2014. (Use Table B.3)

Prepare the journal entries for Randa to record the loan on January 1, 2011, and the four payments from December 31, 2011, through December 31, 2014. (Round "PV Factor" to 4 decimal places and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Date General Journal Debit Credit

Jan. 1, 2011

Dec. 31, 2011

Dec. 31, 2012

Dec. 31, 2013

Dec. 31, 2014

________________________________________

Problem 10-1A Computing bond price and recording issuance L.O. P1, P2, P3

Stowers Research issues bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds have a $30,000 par value and an annual contract rate of 10%, and they mature in 10 years.

Required:

Consider each of the following three separate situations. (Use Table B.1, Table B.3)

1. The market rate at the date of issuance is 8%.

(a) Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Issue price $

(b) Prepare the journal entry to record their issuance. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Date General Journal Debit Credit

Jan. 1

________________________________________

2. The market rate at the date of issuance is 10%.

(a) Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Issue price $

(b) Prepare the journal entry to record their issuance. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Date General Journal Debit Credit

Jan. 1

________________________________________

3. The market rate at the date of issuance is 12%.

(a) Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Issue price $

(b) Prepare the journal entry to record their issuance. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Date General Journal Debit Credit

Jan. 1

Problem 10-2A Straight-line amortization of bond discount L.O. P1, P2

Heathrow issues $1,600,000 of 9%, 15-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $1,382,579.

Required:

1. Prepare the January 1, 2011, journal entry to record the bonds’ issuance. (Omit the "$" sign in your response.)

Date General Journal Debit Credit

Jan. 1

________________________________________

2(a) For each semiannual period, compute the cash payment. (Omit the "$" sign in your response.)

Cash payment $

2(b) For each semiannual period, compute the the straight-line discount amortization. (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

Amount of discount amortization $

2(c) For each semiannual period, compute the bond interest expense. (Round your intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Bond interest expense $

3. Determine the total bond interest expense to be recognized over the bonds' life. (Omit the "$" sign in your response.)

Total bond interest expense $

4. Prepare the first two years of an amortization table using the straight-line method. (Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response. Omit the "$" sign in your response.)

Semiannual Period-End Unamortized Discount Carrying

Value

1/01/2011 $

$

6/30/2011

12/31/2011

6/30/2012

12/31/2012

________________________________________

5. Prepare the journal entries to record the first two interest payments. (Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Date General Journal Debit Credit

June 30

Dec. 31

________________________________________

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Problem 10-3A Straight-line amortization of bond premium L.O. P1, P3

Heathrow issues $1,900,000 of 5%, 15-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $2,325,594.

Required:

1. Prepare the January 1, 2011, journal entry to record the bonds’ issuance. (Omit the "$" sign in your response.)

Date General Journal Debit Credit

Jan. 1

________________________________________

2(a) For each semiannual period, compute the cash payment. (Omit the "$" sign in your response.)

Cash payment $

2(b) For each semiannual period, compute the the straight-line premium amortization. (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

Amount of premium amortized $

2(c) For each semiannual period, compute the the bond interest expense. (Omit the "$" sign in your response.)

Bond interest expense $

3. Determine the total bond interest expense to be recognized over the bonds' life. (Omit the "$" sign in your response.)

Total bond interest expense $

4. Prepare the first two years of an amortization table using the straight-line method. (Omit the "$" sign in your response.)

Semiannual

Period-End Unamortized Premium Carrying

Value

1/01/2011 $

$

6/30/2011

12/31/2011

6/30/2012

12/31/2012

________________________________________

5. Prepare the journal entries to record the first two interest payments. (Omit the "$" sign in your response.)

Date General Journal Debit Credit

June 30

Dec. 31

________________________________________

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Problem 10-6A Straight-line amortization of bond discount L.O. P1, P2

[The following information applies to the questions displayed below.]

Patton issues $590,000 of 7.5%, four-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. They are issued at $542,310 and their market rate is 10% at the issue date.

references

10.

value:

10.00 points

Problem 10-6A Part 1

1. Prepare the January 1, 2011, journal entry to record the bonds' issuance. (Omit the "$" sign in your response.)

Date General Journal Debit Credit

Jan. 1

________________________________________

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11.

value:

10.00 points

Problem 10-6A Part 2

2. Determine the total bond interest expense to be recognized over the bonds' life. (Omit the "$" sign in your response.)

Total bond interest expense $

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12.

value:

10.00 points

Problem 10-6A Part 3

3. Prepare a straight-line amortization table for the bonds' first two years. (Make sure that the unamortized discount is adjusted to "0" and the carrying value equals to face value of the bond in the last period. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Semiannual

Interest Period-End Unamortized

Discount Carrying

Value

1/01/2011 $

$

6/30/2011

12/31/2011

6/30/2012

12/31/2012

________________________________________

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13.

value:

10.00 points

Problem 10-6A Part 4

4. Prepare the journal entries to record the first two interest payments. (Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Date General Journal Debit Credit

June 30

Dec. 31

________________________________________

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Specifications for a part for a DVD player state that the part should weigh between 25.2 and 26.2 ounces. The process that produces the parts has a mean of 25.7 ounces and a standard deviation of .25 ounce. The distribution of output is normal. Use Table-A.

a. What percentage of parts will not meet the weight specs? (Round your "z" value and final answer to 2 decimal places. Omit the "%" sign in your response.)

Percentage of parts %

b. Within what values will 95.44 percent of sample means of this process fall, if samples of n = 8 are taken and the process is in control (random)? (Round your answers to 2 decimal places.)

Lower value , Upper value

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Problem 10-3

Checkout time at a supermarket is monitored using a mean and a range chart. Six samples of n = 20 observations have been obtained and the sample means and ranges computed:

Sample Mean Range Sample Mean Range

1 3.06 .42 4 3.13 .46

2 3.15 .47 5 3.06 .46

3 3.11 .41 6 3.09 .45

________________________________________

Factors for three-sigma control limits for and R charts

FACTORS FOR R CHARTS

Number of Observations in Subgroup,

n Factor for

Chart,

A2 Lower

Control Limit,

D3 Upper

Control Limit,

D4

2 1.88 0 3.27

3 1.02 0 2.57

4 0.73 0 2.28

5 0.58 0 2.11

6 0.48 0 2.00

7 0.42 0.08 1.92

8 0.37 0.14 1.86

9 0.34 0.18 1.82

10 0.31 0.22 1.78

11 0.29 0.26 1.74

12 0.27 0.28 1.72

13 0.25 0.31 1.69

14 0.24 0.33 1.67

15 0.22 0.35 1.65

16 0.21 0.36 1.64

17 0.20 0.38 1.62

18 0.19 0.39 1.61

19 0.19 0.40 1.60

20 0.18 0.41 1.59

________________________________________

a. Using the factors in the above table, determine upper and lower limits for mean and range charts. (Round your intermediate calculations and final answers to 4 decimal places.)

Upper limit for mean

Lower limit for mean

Upper limit for range

Lower limit for range

________________________________________

b. Is the process in control?

Yes

No

Problem 10-4

Computer upgrades have a nominal time of 80 minutes. Samples of five observations each have been taken, and the results are as listed.

SAMPLE

1 2 3 4 5 6

79.2 80.5 79.6 78.9 80.5 79.7

78.8 78.7 79.6 79.4 79.6 80.6

80.0 81.0 80.4 79.7 80.4 80.5

78.4 80.4 80.3 79.4 80.8 80.0

80.6 80.1 80.8 80.6 78.8 81.1

________________________________________

Factors for three-sigma control limits for and R charts

FACTORS FOR R CHARTS

Number of Observations in Subgroup,

n Factor for

Chart,

A2 Lower

Control Limit,

D3 Upper

Control Limit,

D4

2 1.88 0 3.27

3 1.02 0 2.57

4 0.73 0 2.28

5 0.58 0 2.11

6 0.48 0 2.00

7 0.42 0.08 1.92

8 0.37 0.14 1.86

9 0.34 0.18 1.82

10 0.31 0.22 1.78

11 0.29 0.26 1.74

12 0.27 0.28 1.72

13 0.25 0.31 1.69

14 0.24 0.33 1.67

15 0.22 0.35 1.65

16 0.21 0.36 1.64

17 0.20 0.38 1.62

18 0.19 0.39 1.61

19 0.19 0.40 1.60

20 0.18 0.41 1.59

________________________________________

a. Using factors from above table, determine upper and lower control limits for mean and range charts. (Round your intermediate calculations and final answers to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required.)

Mean Chart Range Chart

UCL

LCL

________________________________________

b. Decide if the process is in control.

Yes

No

4.

value:

18 points

Problem 10-6

A medical facility does MRIs for sports injuries. Occasionally a test yields inconclusive results and must be repeated. Using the following sample data and n = 192.

SAMPLE

1 2 3 4 5 6 7 8 9 10 11 12 13

Number of retests 1 1 2 0 2 1 2 0 1 6 2 2 2

________________________________________

a. Determine the upper and lower control limits for the fraction of retests using two-sigma limits. (Do not round intermediate calculations. Round your final answers to 4 decimal places. Leave no cells blank - be certain to enter "0" wherever required.)

UCL

LCL

________________________________________

b. Is the process in control?

Yes

No

5.

value:

18 points

Problem 10-7

The postmaster of a small western town receives a certain number of complaints each day about mail delivery.

DAY

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Number of complaints 4 12 16 8 9 6 5 13 14 7 6 4 2 10

________________________________________

a. Determine three-sigma control limits using the above data. (Round your intermediate calculations to 4 decimal places and final answers to 3 decimal places. Leave no cells blank - be certain to enter "0" wherever required.)

UCL

LCL

________________________________________

b. Is the process in control?

Yes

No

6.

value:

18 points

Problem 10-8

Given the following data for the number of defects per spool of cable.

OBSERVATION

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Number of defects 3 3 1 0 1 3 3 0 2 5 3 1 2 0

________________________________________

a. Determine three-sigma control limits using the above data. (Do not round intermediate calculations. Round your final answers to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required.)

UCL

LCL

________________________________________

b. Is the process in control?

Yes

No

Chapter 13 Homework

1.

value:

10 points

Problem 13-3

A large bakery buys flour in 25-pound bags. The bakery uses an average of 4,700 bags a year. Preparing an order and receiving a shipment of flour involves a cost of $10 per order. Annual carrying costs are $75 per bag.

a. Determine the economic order quantity. (Do not round intermediate calculations. Round your final answer to the nearest whole number.)

Economic order quantity bags

b. What is the average number of bags on hand?(Round your answer to the nearest whole number.)

Average number of bags

c. How many orders per year will there be? (Round your final answer to the nearest whole number.)

Number of orders per year

d. Compute the total cost of ordering and carrying flour. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Total cost $

e. If holding costs were to increase by $9 per year, how much would that affect the minimum total annual cost? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Increase by $

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2.

value:

10 points

Problem 13-4

A large law firm uses an average of 44 boxes of copier paper a day. The firm operates 261 days a year. Storage and handling costs for the paper are $26 a year per box, and it costs approximately $62 to order and receive a shipment of paper.

a. What order size would minimize the sum of annual ordering and carrying costs? (Round your answer to the nearest whole number.)

Order size boxes

b. Compute the total annual cost using your order size from part a. (Round intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.)

Total annual cost $

c. Except for rounding, are annual ordering and carrying costs always equal at the EOQ?

Yes

No

d-1. The office manager is currently using an order size of 199 boxes. The partners of the firm expect the office to be managed “in a cost-efficient manner.”, compute total cost. (Round intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.)

TC200 = $

d-2. Would you recommend that the office manager use the optimal order size instead of 199 boxes?

Yes

No

3.

value:

10 points

Problem 13-6

A produce distributor uses 780 packing crates a month, which it purchases at a cost of $10 each. The manager has assigned an annual carrying cost of 35 percent of the purchase price per crate. Ordering costs are $28. Currently the manager orders once a month.

How much could the firm save annually in ordering and carrying costs by using the EOQ? (Round intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.)

Savings $ per year

4.

value:

10 points

Problem 13-9

The Friendly Sausage Factory (FSF) can produce hot dogs at a rate of 5,000 per day. FSF supplies hot dogs to local restaurants at a steady rate of 280 per day. The cost to prepare the equipment for producing hot dogs is $66. Annual holding costs are 45 cents per hot dog. The factory operates 291 days a year.

a. Find the optimal run size. (Do not round intermediate calculations. Round your answer to the nearest whole number.)

Optimal run size

b. Find the number of runs per year. (Round your answer to the nearest whole number.)

Number of runs

c. Find the length (in days) of a run. (Round your answer to the nearest whole number.)

Run length (in days)

5.

value:

10 points

Problem 13-10

A chemical firm produces sodium bisulfate in 100-pound bags. Demand for this product is 20 tons per day. The capacity for producing the product is 50 tons per day. Setup costs $100, and storage and handling costs are $5 per ton a year. The firm operates 200 days a year. (Note: 1 ton = 2,000 pounds.)

a. How many bags per run are optimal? (Round your answer to the nearest whole number.)

Number of bags

b. What would the average inventory be for this lot size? (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole number.)

Average inventory bags

c. Determine the approximate length of a production run, in days. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole number.)

Run length days

d. About how many runs per year would there be? (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole number.)

Run per year

e. How much could the company save annually if the setup cost could be reduced to $28 per run? (Round your intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.)

Savings would be $

6.

value:

10 points

Problem 13-14

A jewelry firm buys semiprecious stones to make bracelets and rings. The supplier quotes a price of $8.2 per stone for quantities of 600 stones or more, $9.5 per stone for orders of 400 to 599 stones, and $10 per stone for lesser quantities. The jewelry firm operates 183 days per year. Usage rate is 25 stones per day, and ordering costs are $48.

a. If carrying costs are $2 per year for each stone, find the order quantity that will minimize total annual cost. (Round your intermediate calculations to the nearest whole number.)

Order quantity stones

b. If annual carrying costs are 23 percent of unit cost, what is the optimal order size? (Round your intermediate calculations to the nearest whole number.)

Optimal order size stones

c. If lead time is 4 working days, at what point should the company reorder? (Round your intermediate calculations to the nearest whole number.)

Reorder quantity stones

7.

value:

10 points

Problem 13-15

A manufacturer of exercise equipment purchases the pulley section of the equipment from a supplier who lists these prices: less than 1,000, $5 each; 1,000 to 3,999, $4.95 each; 4,000 to 5,999, $4.90 each; and 6,000 or more, $4.85 each. Ordering costs are $49, annual carrying costs per unit are 40 percent of purchase cost, and annual usage is 4,860 pulleys.

Determine an order quantity that will minimize total cost. (Round "Q" values to the nearest whole number and all other calculations to 2 decimal places.)

488

1000

4000

6000

5000

8.

value:

10 points

Problem 13-16

A company will begin stocking remote control devices. Expected monthly demand is 820 units. The controllers can be purchased from either supplier A or supplier B. Their price lists are as follows:

SUPPLIER A SUPPLIER B

Quantity Unit Price Quantity Unit Price

1–199 $14.00 1–149 $14.10

200–499 13.80 150–349 13.90

500 + 15.2 350 + 13.70

________________________________________

Ordering cost is $47 and annual holding cost is 32 percent of unit price per unit.

a-1. Which supplier should be used?

Supplier B

Supplier A

a-2. What order quantity is optimal if the intent is to minimize total annual costs?

200-499

500+

1 - 149

1 - 199

150 - 349

350+

9.

value:

10 points

Problem 13-19

Given this information:

Expected demand during lead time = 310 units

Standard deviation of lead time demand = 30 units

Use Table.

Determine each of the following, assuming that lead time demand is distributed normally:

a. The ROP that will provide a risk of stockout of 1 percent during lead time. (Round your answer to the nearest whole number.)

ROP units

b. The safety stock needed to attain a 1 percent risk of stockout during lead time. (Do not round intermediate calculations. Round your answer to the nearest whole number.)

Safety stock units

c-1. Would a stockout risk of 2 percent require more or less safety stock than a 1 percent risk?

Less

More

c-2. Would the ROP be larger, smaller, or unaffected if the acceptable risk were 2 percent instead of 1 percent?

Larger

Smaller

Unaffected

10.

value:

10 points

Problem 13-20

Given this information:

Lead-time demand = 620 pounds

Standard deviation of lead time demand = 70 pounds (Assume normality.)

Acceptable stockout risk during lead time = 4 percent

Use Table.

a. What amount of safety stock is appropriate? (Round your answer to the nearest whole number.)

Safety stock units

b. When should this item be reordered? (Round your answer to the nearest whole number.)

ROP units

c. What risk of stockout would result from a decision not to have any safety stock? (Omit the "%" sign in your response.)

Stockout risk %

## This question was asked on Jan 20, 2013.

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