Concept explainers
Which of the following is NOT an assumption of the EOQ model?
- a. It is possible to receive a purchase discount if the order quantity is sufficiently large.
- b. There is a fixed cost to submit each order that is independent of the amount ordered.
- c. Demand occurs at a constant rate per unit of time.
- d. There is a cost to hold each unit of inventory per unit of time.
To identify: The feature that is not an assumption of the EOQ model.
Explanation of Solution
Correct option: (a)
Correct answer:
It is possible to receive a purchase discount if the order quantity is sufficiently large.
Justification:
Economic order quantity (EOQ) is the optimum purchase quantity of an item at a single point during a period to minimum the annual cost for ordering and carrying the items in inventory. It is also known as the optimum lot size. The above assumption is not true with regards to the EOQ model because, the EOQ is always calculated under the assumption that there are no purchase quantity discounts unless otherwise they are explicitly mentioned by the seller.
Want to see more full solutions like this?
Chapter 12 Solutions
OPERATIONS MANAGEMENT LL W/CONNECT CODE
Additional Business Textbook Solutions
Operations and Supply Chain Management 9th edition
Operations Management, Binder Ready Version: An Integrated Approach
Operations Management: Processes and Supply Chains (11th Edition)
Operations Management: Processes and Supply Chains (12th Edition) (What's New in Operations Management)
Loose-leaf for Operations Management (The Mcgraw-hill Series in Operations and Decision Sciences)
Business in Action (8th Edition)
- Assuming constant annual demand for an item, increasing its orderquantity: A. Increases the number of orders placed per year.B. Increases the total annual purchasing cost.C. Increases the total annual inventory carrying costs.D. Decreases the number of orders placed per yeararrow_forwardWhich of the following is an assumption of the EOQ model? A. The demand for the material may vary from time to time. B. All of the quantity ordered arrives in full just as the company runs out of inventory C. The item cost and the shortage costs are known and constant. D. The lead time could be different from one order to another.arrow_forward44 Which of these statements about the production order quantity model is FALSE? Select one: a. The production order quantity model is appropriate when the assumptions of the basic EOQ model are met, except that receipt is noninstantaneous. b. Because receipt is noninstantaneous, some units are used immediately and not stored in inventory. c. All else equal, the smaller the ratio of demand rate to production rate, the larger is the production order quantity. d. Average inventory is less than one-half of the production order quantity. e. None of the above is false.arrow_forward
- Suppose the following item is being managed using a fixed-order quantity model with safety stock. Annual Demand = 100,000 units Order quantity = 30,000 units Safety stock = 4000 units What are the average inventory level and inventory turnover for this item?arrow_forwardThe EOQ is optimal because it a. minimizes the total inventory cost. b. minimizes the ordering cost of inventory. c. minimizes the holding cost of inventory. d. maximizes the on-hand inventory. e. does none of these.arrow_forwardMost inventory models attempt to minimize a. The likelihood of stockout b. None of these c. The numbers of orders placed d. Total inventory-based cost e The number of items orderedarrow_forward
- Scouts Corp. projects its sales to be 1,000 units this year. As a result of holding inventories, insurance, storage, taxes and other cost are incurred amounted to P2 per unit per year. Every time Scouts Corp. makes an order, P10 is incurred. On the average it takes 3 days to make and receive an order. (Use 360 days a year). Assuming Scouts Corp.’s inventory may take as 5 days to respond, how many units of inventory is the average daily usage? and what is the normal lead time usage?arrow_forwardItem X is a standard item stocked in a company's inventory of component parts. Each year the firm, on a random basis, uses about 2,600 of item X, which costs $25 each. Storage costs, which include insurance and cost of capital, amount to $7 per unit of average inventory. Every time an order is placed for more of item X, it costs $26. a. Whenever item X is ordered, what should the order size be? Note: Round your answer to the nearest whole number. Order size b. What is the annual cost for ordering item X? Note: Round your order quantity to the nearest whole number and your final answer to 2 decimal places. Ordering costarrow_forwardCompany ABC utilizes an inventory system in which order gets placed after uniform time duration. Which of the following represents the inventory policy used by the Company? a) (0, x) Model b) EOQ Model c) Fixed period model d) Fixed quantity modelarrow_forward
- The owner and manager of a hardware store reevaluates his inventory policy for hammers. sells an average of 50 hammers a month, so you have placed purchase orders for 50 hammers with a distributor at a cost of $20 each at the end of each month. But the owner does not place all the store orders and find that this takes much of your time. He estimates that the value of his time spent ordering hammers is $75. a) What must be the unit cost of maintaining hammers for the current policy of the hardware store to be Optimal according to the EOQ model? b) If the distributor delivers an order for hammers in 5 business days (out of an average of 25 per month), what should be the reorder point, according to the EOQ model?arrow_forwardThe following statements refer to the Economic Order Quantity (EOQ) model. Which of the following are true? I. The EOQ is found by minimizing the total demand function. II. Total annual purchasing costs affects the EOQ. III. The EOQ model takes the timing of reordering into account.arrow_forwardWhich of the following is less likely to represent an inventory ordering cost? a. Warehousing costs b. Transportation costs per order c. Cost of initiating an order d. Lost profits from lost sales due to shortages e. Cost of production disruptions and set up costs to reinstate production due to shortage of raw materials or componentsarrow_forward
- Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,Operations ManagementOperations ManagementISBN:9781259667473Author:William J StevensonPublisher:McGraw-Hill EducationOperations and Supply Chain Management (Mcgraw-hi...Operations ManagementISBN:9781259666100Author:F. Robert Jacobs, Richard B ChasePublisher:McGraw-Hill Education
- Purchasing and Supply Chain ManagementOperations ManagementISBN:9781285869681Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. PattersonPublisher:Cengage LearningProduction and Operations Analysis, Seventh Editi...Operations ManagementISBN:9781478623069Author:Steven Nahmias, Tava Lennon OlsenPublisher:Waveland Press, Inc.