Practise Final - Bus 359

BUS 359 Final
PRACTISE FINAL--- BUS 359
1. A store has sale of 1000 units per year. Ordering cost is $10. Holding cost is $0.5 per unit.
Determine expected number of orders & annual inventory cost?
2. Demand = 8,000 iPods per year, 250 working day year. Lead time for orders is 3 working
days, but it may also take 4 days. Calculate ROP?
3. A furniture company uses 100 kg of wood every day. The lead time to obtain the wood is 7
days.
a. Calculate the reorder point if there is no safety stock.
b. If the company decides the safety stock is 15% of reorder point. Calculate the reorder point
level.
c. If the policy of the company is the safety stock is 5 days of material usage. Compute the
reorder point.
4. Assume the annual demand for an item is 360 units. The holding cost for it is $1 per
unit per year. The ordering cost is $100 per order.
a. If the current order quantity is Q=100 units per order, then what is the total cost
for the current inventory policy?
b. What is the EOQ?
c. Aassuming a 300-day work year; how many orders should be processed per year?
What is the expected time between orders?
𝐷𝑒𝑚𝑎𝑛𝑑 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑑𝑎𝑦𝑠
(No of orders = ; Time between orders = )
𝑄 𝑁𝑜 𝑜𝑓 𝑜𝑟𝑑𝑒𝑟𝑠
d. What is the total cost for the inventory policy using EOQ?
e. If demand for this item is 3 units per day, and delivery lead-time is 15 days, what
should we use for a re-order point?
Practise Final BUS 359

BUS 359 Final
5. Dinesh Hariharan has been in the lumber business for most of his life. Dinesh’s
biggest competitor is Asul Ilyas. Through many years of experience, Dinesh knows
that the ordering cost for an order of plywood is $25 and that the carrying cost is 25%
of the loading cost. Both Dinesh and Asul Ilyas receive plywood in loads that cost
$100 per load. Furthermore, Dinesh and Asul Ilyas use the same supplier of plywood,
and Dinesh was able to find out that Asul Ilyas orders in quantities of 4,000 loads at a
time. Dinesh also knows that 4,000 loads is the EOQ for Asul Ilyas. What is the
annual demand in loads for plywood for Asul Ilyas?
6. A furniture company uses 100 kg of wood every day. The Lead Time to obtain the
wood is 7 days.
a. What is the Reorder Point?
b. The company decided to have 3 days of safety stock. What is the new Reorder
Point?
c. The company decided to have safety stock as 20% of ROP. What is the new
Reorder Point?
7. A knives company use 50 kg of metal sheets/day. The production is quite standardized

and the supplier is very relaiable. The Supplier Lead Time is 2 weeks from the order.
Both T Company and the suppier works 5 days a week.
a. What is the Reorder Point?
b. The knives company decided not to have stock problems any more. So they decided
to have a “safety stock” time based. They decided to have 2 weeks of margin on the
stock. What is the new Reorder Point?
8. KMK, the famous regional distributor purchases discontinued appliances from various
suppliers and then sells them on demand to retailers in the region. The distributor operates 6
days per week, 52 weeks per year. Management wants to revaluate its current inventory
policy for mixer category. Management wants to maintain 98% service level. The following

BUS 359 Final
data are estimated for the mixer: Average daily demand = 100 mixers; Average lead time =
2 days; Mixer price=$80/unit; Holding cost per item per year is 35% of unit price; Ordering
cost=$120/order. As a purchasing executive, you are asked to identify the optimal order
quantity for the company. What does this quantity mean to the company? How much will
the total holding cost; ordering cost and total cost of inventory be?
 EXTENDED VERSION OF ROP
1. Variable demand, constant leadtime -> What is the ROP?

BUS 359 Final
2. Constant demand, variable leadtime -> What is the ROP?
3. Variable demand, variable leadtime -> What is the ROP?

BUS 359 Final
4. A sporting goods company has a distribution centre that maintains inventory of

fishing rods. The fishing rods have the following demand, lead time and cost
characteristics:
Average demand = 100 units per day, standard deviation = 12 units
Average lead time = 2 days, standard deviation = 2 days
250 days per year
Unit cost = $25
Desire service level 95%
Ordering cost = $50
Inventory carrying cost = 20% per year
a. Calculate the quantity of fishing rods this DC should place in one order.
b. What is the total inventory cost of this DC if they choose to use this EOQ?
c. What is the reorder point of this DC?
5. Suppose the new quantity is Q*= 300, without calculations, the total inventory cost
associated with Q*=300 must be……..the cost associated with EOQ
A. Higher than
B. Lower than
C. Equal to
6. At the EOQ, the total annual holding cost is always…….the total annual ordering
cost.
A. Greater than
B. Smaller than
C. Different from
D. Same as
E. None of the above
F. It depends on specific problems

BUS 359 Final
7. What is the cost of quality and how many classifications do we have to classify
these costs? Given the following cost information for company Alpha, calculate:
a. Total prevention cost?
b. Total appraisal cost?
c. Total cost of internal failures?
d. Total cost of external failures?
e. Total cost of quality?
COQ = (PC + AC) + (IFC + EFC)
Cost item Total for the year:
Quality assurance $400,000
Equipment maintenance $200,000
Products redesign $360,000
Product warranty and repair $540,000
Product testing and inspection $377,000
Training $250,000
Process improvement/Kaizen $720,000
Material scrap $130,000
Rework labor $417,000
Incoming materials inspection $323,000
After sales customer support $250,000
Travel to suppliers/process certification $55,000
Travel to customers/problem solving $50,000
Know that:
• Prevention costs include resources spent on planning, new-product reviews,
investments in more capable processing equipment, training, process control, and
quality improvement projects.

BUS 359 Final
• Appraisal costs include resources spent on incoming material inspections, product

and process inspections, inspection staff salaries, test equipment, and development of
test procedures.
• Internal failure costs include scrapped materials, salvage and rework, excess
material inventories, and other costs of correction.
• External failure costs include complaint settlements, loss of customer goodwill and
future sales, returned materials, warranty work, and field service or repairs.
Using the BOM shown above, how many of part E will be needed if 20 units of end
item A are needed? How many part Cs will be needed?

BUS 359 Final
By looking at the BOM, how many of part E will be needed if 100 units of items A
are needed?
GEAR BOX REQUIREMENTS

Weeks 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements 15 5 7 10 0 15 20 10 0 8 2 16
On Hand Inventory 17
Scheduled Receipts
Net Requirements
Planned Order Release

BUS 359 Final
INPUT SHAFT REQUIREMENTS

Lot for lot
Gross Requirements
Scheduled Receipts
Net Requirements
Fixed Order Quantity (FOQ = 15)

Gross Requirements
Scheduled Receipts
Net Requirements
ENGINE ASSEMBLY MASTER SCHEDULE

Planned Order 14 6 15 10 13 16 11 0 11 22 0 26
Release

BUS 359 Final
GEAR BOX REQUIREMENTS

Lot for Lot
Gross Requirements
Scheduled Receipts
Net Requirements
INPUT SHAFT REQUIREMENTS

Fixed Order Quantity (FOQ = 25)
Gross Requirements
Scheduled Receipts
Net Requirements

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BUS 359 Final

PRACTISE FINAL--- BUS 359

Practise Final BUS 359

7. A knives company use 50 kg of metal sheets/day. The production is quite standardized

Practise Final BUS 359

 EXTENDED VERSION OF ROP

1. Variable demand, constant leadtime -> What is the ROP?

Practise Final BUS 359

2. Constant demand, variable leadtime -> What is the ROP?

3. Variable demand, variable leadtime -> What is the ROP?

Practise Final BUS 359

4. A sporting goods company has a distribution centre that maintains inventory of

Practise Final BUS 359

Practise Final BUS 359

• Appraisal costs include resources spent on incoming material inspections, product

Practise Final BUS 359

GEAR BOX REQUIREMENTS

Planned Order Release

Practise Final BUS 359

INPUT SHAFT REQUIREMENTS

Planned Order Release

Fixed Order Quantity (FOQ = 15)

Planned Order Release

ENGINE ASSEMBLY MASTER SCHEDULE

Practise Final BUS 359

GEAR BOX REQUIREMENTS

Planned Order Release

INPUT SHAFT REQUIREMENTS

Planned Order Release

Practise Final BUS 359

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