1. Precious Jewels Corporation produces quality jewelry items for various retailers. For the coming year, it has estimated it
will consume 500 ounces of gold. Its carrying costs for a year are P2 per ounce. No safety stock is maintained. If the EOQ is
100 ounces, what is the cost per order?
a. P40
b. P20
c. P5
d. P25
ANS: B
EOQ = 100 =
10,000 = 500x
P20 = x
2. Precious Jewels Corporation produces quality jewelry items for various retailers. For the coming year, it has estimated it
will consume 500 ounces of gold. Its carrying costs for a year are P2 per ounce. No safety stock is maintained. If the EOQ is
100 ounces, what would be the estimate for Precious Jewels’ total carrying costs for the coming year?
a. P200
b. P250
c. P100
d. P1,000
ANS: C
500 oz/100 oz = 5 orders per year * P20 per order cost = P100
3. A firm estimates that its annual carrying cost for material X is P.30 per lb. If the firm requires 50,000 lbs. per year, and
ordering costs are P100 per order, what is the EOQ (rounded to the nearest pound)?
a. 5,774 lbs.
b. 4,082 lbs.
c. 1,732 lbs.
d. 1,225 lbs.
ANS: A
EOQ =
EOQ = 5,774 lbs.
4. Zedlar Corporation's EOQ for Material A is 500 units. This EOQ is based on:
Annual demand
Ordering costs
5,000 units
P12.50
Refer to Zedlar Corporation. What is the annual carrying cost per unit for Material A?
a. P0.50
b. P2.00
c. P2.50
d. P5.00
ANS: A
EOQ = 500 units =
CC = P0.50
5. Refer to Zedlar Corporation. What are Zedlar’s Corp.'s total annual ordering costs for Material A?
a. P6,000
b. P600
c. P125
d. P1,000
ANS: C
# of orders per year = 5,000/500 = 10 orders per year
10 orders per year * P12.50 = P125.00
6. Clear Day Corporation manufactures various glass products including a car window. The setup cost to produce the car
window is P1,200. The cost to carry a window in inventory is P3 per year. Annual demand for the car window is 12,000
units.
Refer to Clear Day Corporation. What is the most economical production run (rounded to the nearest unit)?
a. 6,000 units
b. 3,000 units
c. 9,295 units
d. 3,098 units
ANS: D
EOQ =
EOQ = 3,098 units
7. Refer to Clear Day Corporation. If the annual demand for the car window was to increase to 15,000 units,
a. the number of setups would decrease.
b. the total carrying costs would increase.
c. the economic order quantity would decline.
d. all of the above would occur.
8. A company has estimated its economic order quantity for Part A at 2,400 units for the coming year. If ordering costs are
P200 and carrying costs are P.50 per unit per year, what is the estimated total annual usage?
a. 6,000 units
b. 28,800 units
c. 7,200 units
d. 2,400 units
ANS: C
EOQ = 2,400 units =
AU = 7,200 units
9. A company annually consumes 10,000 units of Part C. The carrying cost of this part is P2 per year and the ordering costs
are P100. The company uses an order quantity of 500 units. By how much could the company reduce its total costs if it
purchased the economic order quantity instead of 500 units?
a. P500
b. P2,000
c. P2,500
d. P0
ANS: A
EOQ =
EOQ = 1,000 units
At present, 20 orders are placed for a total annual cost of P2,000. If the EOQ is used, 10 orders will be
placed at a cost of P1,000
Because an average of an additional 250 units will be on hand, carrying costs will increase by P500.
The net difference is a savings of P500.
10. A company annually consumes 10,000 units of Part C. The carrying cost of this part is P2 per year and the ordering costs
are P100. The company uses an order quantity of 500 units. If the company operates 200 days per year, and the lead time for
ordering Part C is 5 days, what is the order point?
a. 250 units
b. 1,000 units
c. 500 units
d. 2,000 units
ANS: A
Order point = Daily use * Lead time
= (10,000/200) * 5
= 250 units
11. Douglas Corporation operates its factory 300 days per year. Its annual consumption of Material Y is 1,200,000 gallons. It
carries a 10,000 gallon safety stock of Material Y and its lead time is 12 business days.
Refer to Douglas Corporation. What is the order point for Material Y?
a. 10,000 gallons
b. 38,000 gallons
c. 48,000 gallons
d. 58,000 gallons
ANS: D
Order point = (Daily use * Lead time) + Safety Stock
= (4,000 * 12) + 10,000
= 58,000 gallons
12. Refer to Douglas Corporation. If the EOQ for Material Y is 30,000 gallons, and the carrying cost per gallon per year is
P.25, what is the total annual carrying cost for Material Y?
a. P3,750
b. P7,500
c. P6,250
d. P10,000
ANS: C
Annual carrying cost = [(EOQ/2) + Safety stock] * per unit carrying cost
= (15,000 + 10,000) * P0.25
= P6,250
13. Atkins Corporation consumes 1,200,000 gallons of Material Y per year. Its order quantity is 30,000 gallons. It maintains
a safety stock of 10,000 gallons and its annual carrying costs are P0.25 per gallon per year. If the ordering cost is P20 per
order, what are the total annual ordering costs?
a. P600
b. P800
c. P8,300
d. P1,200
ANS: B
Annual ordering costs = (1,200,000/30,000) * P20
= 40 orders * P20
= P800
14. Rawson Corporation’s order quantity for Material T is 5,000 lbs. If the company maintains a safety stock of T at 500 lbs.,
and its order point is 1,500 lbs.
Refer to Rawson Corporation. What is the lead time assuming daily usage is 50 lbs.?
a. 30 days
b. 100 days
c. 10 days
d. 20 days
ANS: D
Order point = (Daily use * Lead time) + Safety Stock
1,500 = (50 * LT) + 500
1,000 = (50 * LT)
20 = LT
15. Refer to Rawson Corporation. What would be the total annual carrying costs assuming the carrying cost per unit is P0.20?
a. P1,000
b. P600
c. P100
d. P1,100
ANS: B
(5,000units/2) + 500 units = 3,000 units *P0.20/unit = P600