Use the following information to answer the next question. ABC Inc. is about to
ID: 2816919 • Letter: U
Question
Use the following information to answer the next question.
ABC Inc. is about to begin production on two homes in a new housing subdivision. ABC anticipates that it will need 80,000 square feet of lumber over its 450 day construction cycle. Ordering and holding costs are $6/order and $8/sq.ft., respectively. ABC's turnaround time on a lumber order is 2 days.
1. How many units of lumber will ABC have in its inventory at the end of the 3rd day of construction? Round intermediate steps and your final answer to two decimals.
2.The total cost of inventory is a linear relationship that is a function of the cost of ordering inventory and the cost of holding inventory.
True
False
3. Safety stock can be used to reduce risk associated with using the EOQ model.
True
False
4.Which of the following will always decrease total inventory costs?
Increasing order quantity
Increasing total units demanded
Decreasing order quantity
None of the above
please explain thank you
Explanation / Answer
EOQ = square root of (2*annual demand*ordering cost per order) / (holding cost per square foot)
Square root of (2*80000*6)/ (8)
346.41
square feet of lumber used in a day
80000/450
177.7778
total inventory of lumber available in 3 days period = EOQ*2
346.41*2
692.82
consumption of lumber inventory in three days
177.777*3
533.331
1-
inventory available at the end of day 3
692.82-533.331
159.49
2-
True because both variables total ordering cost and total holding costs are inversely related
3-
True because as the lead time of order will increase amount of safety stock will increase and it will reduce the risk of stock out
4-
none of the above because all variables affects the total inventory cost
EOQ = square root of (2*annual demand*ordering cost per order) / (holding cost per square foot)
Square root of (2*80000*6)/ (8)
346.41
square feet of lumber used in a day
80000/450
177.7778
total inventory of lumber available in 3 days period = EOQ*2
346.41*2
692.82
consumption of lumber inventory in three days
177.777*3
533.331
1-
inventory available at the end of day 3
692.82-533.331
159.49
2-
True because both variables total ordering cost and total holding costs are inversely related
3-
True because as the lead time of order will increase amount of safety stock will increase and it will reduce the risk of stock out
4-
none of the above because all variables affects the total inventory cost