Information text: Answer next three questions allowing planned shortage Now, ass

Question

Information text: Answer next three questions allowing planned shortage Now, assume that this company allows shortages and that the annual cost per unit of shortages is $2.

1. Should it allow shortages, and what percent would be savings in total inventory cost?

Select one:

a. no, don't allow shortages, there is no savings.

b. yes, allow shortages. It would save almost 8% versus not allowing shortages.

c. yes, allow shortages. It would save almost 48% versus not allowing shortages.

d. no, don't allow shortages as inventory savings can not be determined.

Select one:

a. 15%

b. 0%

c. 50%

d. can't be determined.

3.

Select one:

a. when stock runs out

b. 575 yards

c. when it has 1039 yards of backorder

d. can't be determined

2. Again, assume that this company allows shortages and that the annual cost per unit of shortages is $2. what percent of customers will be on backorder?

Explanation / Answer

Answers:

1.b. yes, allow shortages. It would save almost 8% versus not allowing shortages.

2.c. 50%

3.c. when it has 1039 yards of backorder

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