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# Operations Management Examination 1 GENERAL INSTRUCTIONS -Do all of the scratch work, calculations etc., in the margins and/or on the opposite sides...

Q 18: A company is using the Economic Order Quantity (EOQ) model to manage its inventories. Suppose its annual demand doubles, while the ordering cost per order and inventory holding cost per unit per year do not change. What will happen to the total annual variable cost? The annual variable cost includes the annual ordering cost and annual inventory holding cost?

a) It doubles.
b) It increases by 41.42%.
c) It remains the same.
d) The impact depends upon the value of the ordering cost.
e) It quadruples (increases by 400%).

Q 19: The annual demand for an item is 2400 units. The inventory holding cost is \$ 6.00 per unit per year. The demand is continuous and constant, that is, 200 units/month. The item is purchased in two lots. The size of the first lot is 1600 units and the size of the second lot is 800 units. Find the total annual cost of holding inventory.

Q 20: A manufacturing company sells its products directly to customers and operates 5 days a week, 52 weeks a year. The production department of this company can produce at the rate of 60 units per day. The setup cost for a production run is \$ 125.00. The cost of holding is \$ 4.00 per unit per year. The demand for the item is continuous and constant and is 3,900 units per year. (Note: The demand occurs only when the company is operating, that is, 5 days a week for 52 weeks). Find the optimum number of units to be produced in one batch (economic production quantity). Round the number to nearest integer.

Operations Management Examination 1 GENERAL INSTRUCTIONS -Do all of the scratch work, calculations etc., in the margins and/or on the opposite sides of the examination pages. DO NOT USE ANY OTHER SCRATCH PAPER. - JUSTIFY YOUR ANSWERS TO ALL NUMERICAL PROBLEMS; OTHERWISE YOU MAY NOT RECEIVE ANY CREDIT! _______________________________________________________________________ _ Q 13: Consider a firm with a daily demand of 100 units, a production rate per day of 500 units, a setup cost of \$200, and an annual holding cost per unit of \$10. Suppose that the firm operates 300 days per year. How many units of inventory must their storage area be able to hold? Q 14: If annual demand is 24,000 units, orders are placed every 0.5 months, and the cost to place an order is \$50, what is the annual ordering cost? Q 15: If the Economic Order Quantity (EOQ) model is used to order material, which of the following represents the total annual variable cost that includes the annual costs of ordering and inventory holding? Please note the following symbols. D: Annual Demand, S: Ordering Cost/Order and H: Inventory holding cost per unit per year. a) H DS 2 b) S DH 2 c) DSH 2 d) DSH e) SD H 2 Q 16: A.K. Plywood Products offers the following all-units quantity discount schedule for its 4 feet by 8 feet sheets of quality plywood. Order Size Price 1-9 sheets \$25 10-49 sheets \$23 50-99 sheets \$21 100 sheets or more \$18 Miami Home Furnishings (MHF) orders plywood from A.K. Plywood Products. MHF’s accounting department determines an ordering cost of \$50 per order and an annual inventory holding cost percentage of 20% of the price of the item. The annual demand is 250 sheets. What should the order size be every time that an order is placed to minimize total annual cost?
Q 17: Consider the data given in the following table and identify the appropriate category for item C in an ABC classification. Item Stcok Number Annual Volume (Units) Unit Cost A 1250 \$92.00 B 335 \$0.64 C 1970 \$18.75 D 2430 \$62.35 E 990 \$13.80 F 680 \$89.40 G 2150 \$0.98 H 210 \$9.80 I 1250 \$0.52 J 970 \$16.80 ABC Analysis Q 18: A company is using the Economic Order Quantity (EOQ) model to manage its inventories. Suppose its annual demand doubles, while the ordering cost per order and inventory holding cost per unit per year do not change. What will happen to the total annual variable cost? The annual variable cost includes the annual ordering cost and annual inventory holding cost? a) It doubles. b) It increases by 41.42%. c) It remains the same. d) The impact depends upon the value of the ordering cost. e) It quadruples (increases by 400%). Q 19: The annual demand for an item is 2400 units. The inventory holding cost is \$ 6.00 per unit per year. The demand is continuous and constant, that is, 200 units/month. The item is purchased in two lots. The size of the first lot is 1600 units and the size of the second lot is 800 units. Find the total annual cost of holding inventory. Q 20: A manufacturing company sells its products directly to customers and operates 5 days a week, 52 weeks a year. The production department of this company can produce at the rate of 60 units per day. The setup cost for a production run is \$ 125.00. The cost of holding is \$ 4.00 per unit per year. The demand for the item is continuous and constant and is 3,900 units per year. (Note: The demand occurs only when the company is operating, that is, 5 days a week for 52 weeks). Find the optimum number of units to be produced in one batch (economic production quantity). Round the number to nearest integer.
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