349219118 test bank for operations management 11th edition by krajewski

Test Bank For Operations Management 11th Edition By Krajewski
Test Bank for all chapters, Supplements are included. Download at :
/>Solutions Manual for Operations Management Processes And Supply
Chains 11th Edition by Lee J. Krajewski, Manoj K. Malhotra, Larry P.
Ritzman
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/>Operations Management, 11e (Krajewski et al.)
Supplement C: Special Inventory Models
C.1 Noninstantaneous Replenishment
1) The economic production lot size represents the maximum quantity of on-hand inventory for a
manufacturer.
Answer: FALSE
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
2) For analysis using the economic production lot size (ELS) model to be useful, the producer
must be able to produce the item faster than it is consumed.
Answer: TRUE
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
3) Consider a noninstantaneous replenishment situation in which the production rate is 100 units
per day, the demand rate is four units per day, and the economic production lot size is 500 units.
Which of the following statements is TRUE?
A) The average cycle inventory is fewer than 225 units.
B) The average cycle inventory is greater than 300 units.
C) The rate of buildup in cycle inventory during the production cycle is fewer than 100 units per
day.

D) The rate of buildup in cycle inventory during the production cycle is greater than or equal to
400 units per day.
1


Answer: C
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking

2


Scenario C.1
Jerry Allison is in charge of production for a small producer of plumbing supplies. The cricket
model has an estimated annual demand of 12,000 units and can be produced at a production rate
of 90 units per day. The company produces (and sells) the cricket 300 days per year. Setup cost
to produce this model averages $22 and the item has a holding cost of $3 per unit per year.
4) Use the information in Scenario C.1. What is the economic production lot size (ELS)?
A) fewer than or equal to 400 units
B) greater than 400 units but fewer than or equal to 480 units
C) greater than 480 units but fewer than or equal to 500 units
D) greater than 500 units
Answer: D
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems

AACSB: Analytical Thinking
5) Use the information in Scenario C.1. How many production runs per year are needed if Jerry
chooses to produce at his economic production lot size (ELS)?
A) fewer than or equal to 10 runs
B) greater than 10 runs but fewer than or equal to 20 runs
C) greater than 20 runs but fewer than or equal to 30 runs
D) greater than 30 runs
Answer: C
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
6) Use the information in Scenario C.1. If Jerry chooses to produce batches dictated by the
economic production lot size (ELS) model, how many days elapse between the start of
consecutive production runs (what is the time between runs or TBO)?
A) fewer than or equal to 8 days
B) greater than 8 days but fewer than or equal to 10 days
C) greater than 10 days but fewer than or equal to 12 days
D) greater than 12 days
Answer: D
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking

3

7) Use the information in Scenario C.1. What is the maximum inventory if Jerry chooses to
produce at the economic production lot size (ELS)?
A) fewer than or equal to 300 units
B) greater than 300 units but fewer than or equal to 320 units
C) greater than 320 units but fewer than or equal to 340 units
D) greater than 340 units
Answer: B
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
8) Use the information in Scenario C.1. If Jerry chooses to produce the batch size suggested by
the economic production lot size (ELS) model, what is the annual cost?
A) less than or equal to $900
B) greater than $900 but less than or equal to $950
C) greater than $950 but less than or equal to $1000
D) greater than $1000
Answer: B
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
9) Consider a manufacturer that uses the economic production lot size (ELS) model. What must
be the relationship be between production rate and demand rate for the producer to spend double
the time in the production and demand portion of the inventory cycle than they spend in only the
demand portion of the inventory cycle?
A) p = 1.5d
B) p = d

C) 2p = d
D) p = 2d
Answer: A
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking

4


10) Consider a manufacturer that uses the economic production lot size (ELS) model. What must
be the relationship be between production rate and demand rate for the producer to spend exactly
the same time in the production and demand portion of the inventory cycle as they spend in only
the demand portion of the inventory cycle?
A) p = d
B) p = 0.5d
C) p = 2d
D) p = 1.5d
Answer: C
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
11) The time between orders is given by the formula ELS/D. What is the significance of its
inverse, D/ELS?
A) the number of orders per year
B) the time between consuming an order

C) the ratio of demand only to production and demand cycles
D) the ratio of the maximum inventory to the production quantity
Answer: A
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
12) Consider a manufacturer that uses the economic production lot size (ELS) model. What must
the relationship be between production rate and demand rate for the producer to realize a
maximum inventory that is exactly two-thirds of their lot size?
A) p = 2d
B) p = 0.5d
C) p = 0.33d
D) p = 3d
Answer: D
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking

5


13) Warren's Ice Cream makes 4 different flavors of ice cream using their secret process and top
secret recipes. Each of their flavors is equally popular and experiences a demand of 5,000
gallons/year. Warren's process is capable of producing 100 gallons/day once they incur the $25
setup cost. The ice cream holding cost is 10% of the $5 per gallon price. Warren's plant runs 250
days a year and stays busy doing so, but management feels they can add another flavor to their

product line and increase their revenue. Which of the following statements is appropriate for this
scenario?
A) Warren's can comfortably add a fifth flavor without increasing the number of days they
operate.
B) Warren's cannot add the fifth flavor because the holding cost would increase.
C) Warren's can add the fifth flavor only if there is zero setup time between flavors.
D) Warren's cannot add the fifth flavor because demand would exceed capacity.
Answer: C
Reference: Noninstantaneous Replenishment
Difficulty: Hard
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
14) In a noninstantaneous replenishment model, as the daily demand approaches the daily
production rate, the:
A) number of production runs per year decreases.
B) length in days of a production run increases.
C) economic lot size increases.
D) time between production runs decreases.
Answer: D
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
15) The ________ is the optimal lot size in situations in which replenishment is not
instantaneous.
Answer: economic production lot size, ELS
Reference: Noninstantaneous Replenishment
Difficulty: Moderate

Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems

6


16) A manufacturer produces aluminum cans internally rather than purchasing them and uses the
economic production lot size equation to govern this process. The length of time that the
aluminum can batch runs is given by the equation ________ and the time between the start of
one batch of cans to the next is found by the equation ________.
Answer: ELS/p, ELS/d
Reference: Noninstantaneous Replenishment
Difficulty: Hard
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
17) The pile of inventory accumulated in an economic production lot size situation is ________
than the lot size dictated by the ELS calculation.
Answer: smaller
Reference: Noninstantaneous Replenishment
Difficulty: Hard
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
18) In an economic production lot size situation, the production rate is always ________ than the
demand rate.
Answer: greater
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment

Learning Outcome: Compare the advantages and disadvantages of common inventory systems
19) In an economic production lot size situation, the producer is producing half the time if the
ratio of production rate to demand rate is ________.
Answer: 2:1
Reference: Noninstantaneous Replenishment
Difficulty: Hard
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
20) Briefly explain why the economic production lot size (ELS) is actually larger than the EOQ
when there are noninstantaneous replenishments.
Answer: The cycle inventory is less than Q/2, which reduces the annual holding cost of ordering
Q units. Thus, a larger order quantity is justified.
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking

7


21) Sketch the economic production lot size (ELS) graph of inventory level as a function of time
and label all elements of the graph.
Answer:

Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems

AACSB: Analytical Thinking
22) A production manager is making a decision on batch size for a product with an annual
demand of 25,000 units per year. The setup cost for each batch is $45 and once the setup is
complete, the product may be produced at the rate of 650 units per day. There is a holding cost of
$2 per unit per year and the plant operates on a 250-day production year. How big should the
production batch be and how long (in days) will it take to produce the batch?
Answer:
ELS =

Production time =

=

= 1,153 units

=

= 1.77 days

Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking

8


23) Walter White must satisfy an annual demand of 50,000 pounds per year. The setup cost for
each batch is $6500 and once the setup is complete, the product may be produced at the rate of

1800 pounds per day. There is a holding cost of $15 per unit per year and the plant operates on a
350-day production year. How big should the production batch be and how long (in days) will it
take to produce the batch?
Answer:
ELS =

Production time =

=

= 6,860.68 pounds

=

= 3.81 days

Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking

9


24) Walter White must satisfy an annual demand of 50,000 pounds per year. The setup cost for
each batch is $6500 and once the setup is complete, the product may be produced at the rate of
1800 pounds per day. There is a holding cost of $15 per unit per year and the plant operates on a
350-day production year. Determine the relevant parameters and sketch the inventory cycle
through two complete cycles, labeling all lines and vertices.

Answer:
ELS =

=
=

=

= 6,860.68 pounds

(p - d)
(1800 - 142)

= 6316 pounds
Production time =

=

= 3.81 days

Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking

10


25) A production manager uses the economic lot size approach to determine the batch size for a

product with an annual demand of 20,000 units per year. The setup cost for each batch is $50 and
once the setup is complete, the product may be produced at the rate of 800 units per day. There is
a holding cost of $2 per unit per year and the plant operates on a 250-day production year. If the
machine used to produce this product is needed for another item and it takes one day to set up
regardless of product, how many production days are available for production of the new item?
Answer:
ELS =

=

Production time =

= 1,054 units

=

Time Between Orders =

= 1.3175 days
=

= 13.175 days

Available time = 13.175 days - 1,3175 days - 2 × (1 day) = 9.8575 days per cycle
= 18.97 cycles/year ≈ 19 cycles/year
19 cycles/year × 9,8575 days/cycle = 187.29 days/year
Reference: Noninstantaneous Replenishment
Difficulty: Moderate
Keywords: noninstantaneous replenishment
Learning Outcome: Compare the advantages and disadvantages of common inventory systems

AACSB: Analytical Thinking
C.2 Quantity Discounts
1) When facing quantity discounts, the EOQ found with the lowest price level is always the
lowest total cost plan.
Answer: FALSE
Reference: Quantity Discounts
Difficulty: Easy
Keywords: quantity discount
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Application of Knowledge

11


2) A pencil supplier just introduced quantity discounts. The price schedule follows.
Order Quantity
000 - 199
200 - 399
400 and more

Price per Unit
$4.00
$3.75
$3.50

XYZ store's annual demand remains at 350 units and ordering cost at $2 per order. If annual
holding cost is 30 percent of the pencils' per-unit price, what order quantity should XYZ select to
minimize all costs?
A) fewer than or equal to 150 units
B) greater than 150 units but fewer than or equal to 199 units

C) greater than 199 units but fewer than or equal to 399 units
D) greater than 399 units
Answer: C
Reference: Quantity Discounts
Difficulty: Moderate
Keywords: quantity discount
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
3) Which one of the following statements about quantity discounts is BEST?
A) The minimum cost point on each price curve is always feasible.
B) A price break is the maximum quantity needed to get a discount.
C) If the EOQ for the lowest price is feasible, this is the best lot size.
D) Either price or quantity is sufficient for the search for the best lot size.
Answer: C
Reference: Quantity Discounts
Difficulty: Moderate
Keywords: quantity discount
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Application of Knowledge

12


4) As an inventory manager, you must decide on the order quantity for an item. Its annual
demand is 350 units. Ordering cost is $20 each time an order is placed, and the holding cost is 30
percent of the per-unit price. Your supplier provided the following price schedule.
Price per Unit
$4.00
$3.75
$3.50

Order Quantity
000 - 199
200 - 399
400 and more

What is the annual cost discrepancy between the optimal order policy and the second best order
policy?
A) Less than $5
B) Between $5 and $10
C) Between $10 and $20
D) More than $20
Answer: B
Reference: Quantity Discounts
Difficulty: Moderate
Keywords: quantity discount
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
5) When faced with a quantity discount situation, the first EOQ should be calculated using the
________ price.
Answer: lowest
Reference: Quantity Discounts
Difficulty: Moderate
Keywords: quantity discount
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Application of Knowledge
6) Why are there discontinuities (areas where the curve jumps up or down and is not smooth) in
the total cost curve in the quantity discount model?
Answer: The total cost curve has breaks due to the price breaks. Reading the total cost curve
from left to right, when purchase quantities reach a price break, an increase in one unit will

trigger a per-unit decrease in price for all units in the order, which accounts for the reduction in
total cost.
Reference: Quantity Discounts
Difficulty: Moderate
Keywords: quantity discount
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Application of Knowledge

13


7) As an inventory manager, you must decide on the order quantity for an item. Its annual
demand is 1,000 units. Ordering costs are $50 each time an order is placed, and the holding cost
is 25 percent of the per-unit price. Your supplier provided the following price schedule.
Quantity
1 - 199
200 - 499
500 or more

Price per Unit
$10.00
$ 9.80
$ 9.60

What ordering-quantity policy do you recommend?
Answer: Start at lowest cost

Therefore, the best order size is 202, with a cost of $10,295.
Reference: Quantity Discounts
Difficulty: Moderate

Keywords: quantity discount
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking

14


8) As an inventory manager, you must decide on the order quantity for an item. Its annual
demand is 679 units. Ordering costs are $7 each time an order is placed, and the holding cost is
10% of the unit cost. Your supplier provided the following price schedule.
Quantity
1 - 100
101 - 350
351 or more

Price per Unit
$5.65
$4.95
$4.55

What ordering-quantity policy do you recommend?
Answer: Start at lowest cost
EOQ4.55 =

=

= 144.54, not feasible

Solve for next lowest cost
EOQ9.80 =

=

= 139, feasible

Compare costs at the feasible 139 and at the lower cost for discount at 351
C139 = H + S + PD =
(.10)4.95 +
(7) + 4.95(679) = $3,429.47
C351 =

H+

S + PD =

(.10)4.55 +

(7) + 4.55(679) = $3,182.84

Therefore, the best order size is 351, with a cost of $3,182.84.
Reference: Quantity Discounts
Difficulty: Moderate
Keywords: quantity discount
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
C.3 One-Period Decisions
1) If demand exceeds the order quantity in a single period situation, then the payoff is simply the
order quantity times the per unit profit.
Answer: TRUE
Reference: One-Period Decisions

Difficulty: Easy
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking

15


2) In a one-period inventory model, the after-season sales price may be zero.
Answer: TRUE
Reference: One-Period Decisions
Difficulty: Moderate
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
3) In a one-period inventory model, the higher the after-season sales price, the higher the order
placed at the start of the season.
Answer: TRUE
Reference: One-Period Decisions
Difficulty: Moderate
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
4) In a one-period inventory model, the more profitable the item during the sales season, the
manager should place a higher order at the start of the season.
Answer: TRUE
Reference: One-Period Decisions
Difficulty: Moderate
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking

5) The closer the in-season and after season sales price are, the lower the order placed at the start
of the season.
Answer: FALSE
Reference: One-Period Decisions
Difficulty: Moderate
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
6) Use of the the single-period model will maximize profit in every season.
Answer: FALSE
Reference: One-Period Decisions
Difficulty: Easy
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Application of Knowledge

16


Scenario C.2
Egan Schranz sells Klammelhoffer skis out of his store in the Alps. The store makes a $75 profit
per unit sold during the ski season, but it will take a $25 loss per unit if sold after the season is
over. The following discrete probability distribution has been estimated for the season's demand.
Demand (D) Demand Probability
20
0.1
40
0.2
60
0.3

80
0.3
100
0.1
7) Use the information in Scenario C.2. What is the payoff with an order quantity (Q) of 80 units
if the demand (D) is 60 units?
A) less than or equal to $3,000
B) greater than $3,000 but less than or equal to $4,000
C) greater than $4,000 but less than or equal to $5,000
D) greater than $5,000
Answer: B
Reference: One-Period Decisions
Difficulty: Moderate
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
8) Use the information in Scenario C.2. What is the best order quantity?
A) 20 units
B) 40 units
C) 60 units
D) 80 units
Answer: D
Reference: One-Period Decisions
Difficulty: Moderate
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking

17

Scenario C.3
Consider an item with the following discrete demand distribution for a one-period inventory
decision.
Demand (D)
10
20
30
40
50

Demand Probability
0.15
0.20
0.30
0.20
0.15

This item experiences a seasonal demand pattern. A profit of $15 per unit is made if the item is
sold in season, but a loss of $10 per unit is incurred if the item is sold after the season is over.
9) Use the information in Scenario C.3. What is the payoff when 40 units are ordered but a
demand of 50 materializes?
A) $150
B) $300
C) $450
D) $600
Answer: D
Reference: One-Period Decisions
Difficulty: Moderate
Keywords: single period model

Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
10) Use the information in Scenario C.3. What is the payoff when 40 units are ordered but a
demand of 30 materializes?
A) $0
B) $100
C) $350
D) $450
Answer: C
Reference: One-Period Decisions
Difficulty: Moderate
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking

18


11) Use the information in Scenario C.3. What is the order quantity with the highest expected
payoff?
A) 20 units
B) 30 units
C) 40 units
D) 50 units
Answer: B
Reference: One-Period Decisions
Difficulty: Moderate
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking

12) A world traveler prepares to leave the comforts of home for a back to nature visit to
Gilligan's Island, where all transactions are conducted in coconuts and the banking system is
completely undeveloped. The traveler can buy coconuts for $2 each before the journey. If he
fails to bring enough coconuts with him and runs out, he must get some coconuts flown in at a
cost of $5 each. If he finishes his vacation and has leftover coconuts he can cash them in when he
returns home, but will receive only $1.50 per coconut. What is his loss per unit if he overstocks
on coconuts prior to leaving home?
A) $0.50
B) $1
C) $3.50
D) $4.50
Answer: A
Reference: One-Period Decisions
Difficulty: Easy
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
13) Which of these statements about the one-period model is BEST?
A) Purchasing a quantity with the highest expected payoff will result in a positive payoff
regardless of the actual demand during the period.
B) The loss per unit cannot exceed the profit per unit.
C) If demand exceeds the purchased quantity then the actual payoff exceeds the expected payoff
for that quantity.
D) The expected payoff for a purchase quantity is always less than the actual payoff for that
quantity.
Answer: C
Reference: One-Period Decisions
Difficulty: Easy
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems

19


14) The need for one-time inventory decisions also can arise in manufacturing plants when
________ items are made to a single order and ________ are high.
Answer: customized, scrap quantities
Reference: One-Period Decisions
Difficulty: Hard
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
15) In a single period model, if purchase quantity Q exceeds demand rate D, then the number of
units sold after the season is ________.
Answer: Q-D
Reference: One-Period Decisions
Difficulty: Easy
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
16) In a single period model, if the in-season demand is unexpectedly high, then the profit can be
calculated as ________.
Answer: pQ
Reference: One-Period Decisions
Difficulty: Easy
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking
17) When do one-period decisions on inventory arise in practice?
Answer: The one-period inventory models are appropriate when retailers handle seasonal goods
that must be sold at a reduced price after the selling season. For manufacturing situations, it can

arise when customized products are made and scrap rates are high.
Reference: One-Period Decisions
Difficulty: Moderate
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
18) Pick any three products that occupy both extremes and the midpoint of the one-period model
continuum. Explain why the products occupy these positions and identify the ideal inventory
model for determining the best order quantity or each.
Answer: Examples will vary, but the pure single-period product should use a single-period
model. The example demand not bound by any season may be ordered using EOQ, POQ or some
other model.
Reference: One-Period Decisions
Difficulty: Moderate
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems

20


19) Explain why in any given season, the one-period decision model may result in a poor choice
for a stocking level?
Answer: The one-period inventory models are appropriate when decision makers handle
seasonal goods that must be sold at a reduced price after the selling season. The model is based
on expected values, i.e., the probability of experiencing demand at a certain level, perhaps based
on historical data. If the data are highly variable, then there is a chance that demand may be
unusually high or low, particularly in a "fashion" setting. A design that catches the public's fancy
may experience high demand that exceeds the stocking level and the retailer will stock out and
fail to realize all the sales that might have been possible. Conversely, a dog of a design may
leave the retailer with excess inventory on the shelves. If this stocking game is played season
after season, profit will be maximized, but any one season may have a different outcome.

Reference: One-Period Decisions
Difficulty: Moderate
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems

21


20) A newsstand is trying to determine how many bundles of newspapers to stock. For each
bundle, the newsstand makes $20. However, they lose $5 per bundle if they do not sell. The
following discrete probability distribution has been estimated for their daily demand. How many
bundles should they stock?
Demand
(bundles)
4
5
6
7
8

Probability
.10
.20
.30
.30
.10

Answer:

Reference: One-Period Decisions

Difficulty: Moderate
Keywords: single period model
Learning Outcome: Compare the advantages and disadvantages of common inventory systems
AACSB: Analytical Thinking

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