MGMT 346 1 TEST QUESTIONS WITH VERIFIED
ANSWERS 2026
Company A uses 750 units a month. Units are purchased at $2. Annual carrying costs
per unit are estimated to be 30% of cost, and ordering costs are $20 per order. The
manager has been using an order size of 1500 units.
What additional annual cost is the shop incurring by staying with this order size? -
Answers - Saving penalty / year = 570 - 464.76 = 105.24
A produce distributor uses 800 units / month, which it purchases at a cost of $10 each.
The manager has assigned an annual carrying cost of 35% of the purchase price per
crate. Ordering costs are $28. Currently the manager orders once a month. How much
could the firm save if annually in ordering and carrying costs by using the EOQ? -
Answers - 1736 - 1371.71 = 364.29
Company A uses approximately 27,000 units a month for its product. Because of
storage limitation, a lot size of 4000 units has been used. Monthly holding cost is 18
cents per unit, and reordering cost is $60 per order. The company operates at an
average of 20 days per month.
a) What penalty is the company incurring by its present order size?
b) The manager would prefer ordering 10 times each month but would have to justify
any change in order size. One possibility is to simplify order processing to reduce
ordering cost. What ordering cost would enable to the manager to justify ordering every
other day (i.e. 10 times per month)? - Answers - a) The company is incurring an
additional monthly cost of $1.32 by its present order size.
b) Order cost of $24.3 per order would enable the manager to justify ordering 10 times
per month
Demand for product A can be approximated by a normal distribution with a mean of 21
gallons per week and a standard deviation of 3.5 gallons per week. The new manager
desires a service level of 90%. Lead time is two days, and the business is open seven
days a week.
a) If an ROP model is used, what ROP would be consistent with the desired service
level. How many days of supply are on hand at the ROP assuming average demand?
b) If a fixed-service level model is used instead of an ROP model, what order size would
be needed for the 90% service level with an interval of 10 days and a supply of 8
ANSWERS 2026
Company A uses 750 units a month. Units are purchased at $2. Annual carrying costs
per unit are estimated to be 30% of cost, and ordering costs are $20 per order. The
manager has been using an order size of 1500 units.
What additional annual cost is the shop incurring by staying with this order size? -
Answers - Saving penalty / year = 570 - 464.76 = 105.24
A produce distributor uses 800 units / month, which it purchases at a cost of $10 each.
The manager has assigned an annual carrying cost of 35% of the purchase price per
crate. Ordering costs are $28. Currently the manager orders once a month. How much
could the firm save if annually in ordering and carrying costs by using the EOQ? -
Answers - 1736 - 1371.71 = 364.29
Company A uses approximately 27,000 units a month for its product. Because of
storage limitation, a lot size of 4000 units has been used. Monthly holding cost is 18
cents per unit, and reordering cost is $60 per order. The company operates at an
average of 20 days per month.
a) What penalty is the company incurring by its present order size?
b) The manager would prefer ordering 10 times each month but would have to justify
any change in order size. One possibility is to simplify order processing to reduce
ordering cost. What ordering cost would enable to the manager to justify ordering every
other day (i.e. 10 times per month)? - Answers - a) The company is incurring an
additional monthly cost of $1.32 by its present order size.
b) Order cost of $24.3 per order would enable the manager to justify ordering 10 times
per month
Demand for product A can be approximated by a normal distribution with a mean of 21
gallons per week and a standard deviation of 3.5 gallons per week. The new manager
desires a service level of 90%. Lead time is two days, and the business is open seven
days a week.
a) If an ROP model is used, what ROP would be consistent with the desired service
level. How many days of supply are on hand at the ROP assuming average demand?
b) If a fixed-service level model is used instead of an ROP model, what order size would
be needed for the 90% service level with an interval of 10 days and a supply of 8
