1. As demand increases, the optimal economic order quantity increases at the same rate of demand. True or False?
2. A firm's ordering cost per year is independent of its order quantity decision. True or False?
3. The parameters of the economic order quantity (EOQ) model include all of the following except:
A. order quantity.
B. demand rate.
C. holding cost per unit per year.
D. ordering cost per order.
4. Company A sells 600 bottles of a dietary supplement per week at $100 per bottle. The supplement is ordered from a supplier who charges Company A $40 per order and $50 per bottle. Company A’s annual holding cost percentage is 30%. Assume Company A operates 50 weeks in a year. What is the economic order quantity?
A. 200
B. 400
C. 500
D. 800
5. Store A purchases cases of fertilizer for its lawn-care business from a supplier who charges Store A $30 per order and $50 per case. Each case consists of five bags of fertilizer. Store A needs 2000 bags of fertilizer a year. Store A’s annual holding costs are 30%. If Store A’s order quantity is 40 cases, what is its average inventory level?
A. 89
B. 45
C. 40
D. 20
6. A critical ratio of 0.8 means there is an 80% chance that demand is less than or equal to the optimal order quantity. True or False?
7. Expected profit is a direct measure of how well a company serves its customers. True or False?
8. Bakery A sells bread for $2 per loaf that costs $0.50 per loaf to make. Bakery A gives a 70% discount for its bread at the end of the day. What is the salvage value of its bread?
A. $2.00
B. $0.60
C. $0.50
D. $0.10
9. Demand is modeled with a normal distribution that has a mean of 300 and a standard deviation of 50. What is the probability that demand is 400 or less?
A. 97.7%
B. 95.4%
C. 47.7%
D. 2.3%
10. The difference between the __________ and _____________ is the mismatch costs in the newsvendor model.
A. maximum profit, expected profit
B. maximum profit, expected sales
C. minimum profit, expected profit
D. minimum profit, expected sales