1. The books of Matulungin Manufacturing Co. showed the following data for the
month of October 2014:

Opening and closing inentories:

Oct. 1 Oct. !1
"aw Materials ##################. $1%&000
  $1'&200
(ork)in $rocess #################. 1%&000
  24&000
*inished +oods ################## 2,&000
  !%&000

-irect labor cost& $!2&000

*actor oerhead& '/ of direct labor cost. 24,000
Cost of +oods old& $112&/00

73,700 (hat is the cost of materials purchased during the month

a. $,'&200
b. $'!&200
c. $'2&000
d. $'1&200

2. 3order Compan has the following data on pril !0& 2014:

pril manufacturing oerhead #####################..
$!0&101.,0
-ecrease in ending inentories:
Materials ############################..
  2&4!0.00
+oods in $rocess ########################.
  /50.00

6ncrease in ending inentor:

*inished +oods #########################
  1&!20.40

 The manufacturing oerhead amounts to /0 of direct labor& and the direct labor
and manufacturing combined e7ual /0 of the total cost of manufacturing. ll
materials are purchased *.O.3. shipping point.

(hat is the cost of goods manufactured

a. $1,0&%10.,0
b. $1,1&200.,0
c. $1,2&!00.,0
d. $1,!&200.,0
 

!. Trackside Co. emplos a 8ob order cost sstem. 6ts manufacturing actiities in 9ul
2014& its rst month of operation& are summari;ed as follows:
  9O3 <=M3>"

201 202 20! 204

-irect materials ###########.. $'&000 $/&,00
$11&%00 $/&000
-irect labor cost ###########. $%&%00 $%&000 $
,&400 $2&400
-irect labor hours ##########. 1&100 1&000
1&400 400
=nits produced ############ 200 100
1&000 !00

Manufacturing oerhead is applied at a rate of $2 per direct labor hour for ariable
oerhead& $! per hour for ?ed oerhead.

 9obs 201& 202& and 20! were completed in 9ul.

(hat is the cost of the completed 8obs

a. $%2&500
b. $%2&/00
c. $'2&500
d. $%/&500

4. The @elper Corporation manufactures one product and accounts for cost b a 8ob)
order cost sstem. Aou hae obtained the following information for the ear ended
-ecember !1& 2014 from the corporationBs books and records:

 Total manufacturing cost added during 155'

  based on actual direct materials& actual
  direct labor and applied factor oerhead
on actual direct labor cost
###########################. $1&000&000

Cost of goods manufactured based on actual

direct materials and direct labor and
applied factor oerhead
########################### 5'0&000

pplied factor oerhead to work in process

based on direct labor cost
########################### '/

pplied factor oerhead for the ear& based

on total manufacturing cost
########################## 2'
 

3eginning work in process inentor was ,0 of ending work in process inentor.

(hat is the cost of direct materials used for ear ended -ecember !1& 2014

a. $!'0&000
b. $5'0&000
c. $550&000
d. $5'0&/00

/. The compan uses a 8ob order cost sstem. The following data were obtained
from the companBs cost records as of 9une !0. <o 8obs were in process at the
beginning of 9une& all costs listed being incurred during the month.

 9ob Order <o. -irect Materials -irect abor @ours -irect

abor Cost

  1001 $ 4&!20 1&!00 $ 1&%00

  1002 5&1/0 !&'00 '&2/0
  100! 11&2'/ ,&200 14&!2/
  1004 !&22/ 1&/00 2&,00
  100/ %&/00 !&200 %&100
  100% 2&'/0 5,0 1&%/0

Manufacturing oerhead costs are charged to 8obs on the basis of $1./0 per direct
labor hour. The actual manufacturing oerhead cost for month totaled $!0&!/0.
-uring 9une& 9ob Order <os. 1001& 1002& 1004 and 100/ were completed. 9obs 1001
and 1002 were shipped out and the costumers were billed $5&000 for 9ob 1001 and
$20&000 for 9ob 1002.

 The cost of goods manufactured would be:

a. $//&/00
b. $//&45/
c. $/%&45/
d. $/'&/00

%. The +len Manufacturing Compan manufactures a product e?clusiel to

customer order& emploing a 8ob order cost sstem.

On ugust 1& 2014& its work in process inentor D/ partiall completed 8obsE had a
cost of $!&000.

-uring ugust& no additional orders were put into production and 1, orders were
completed Dtotal cost& $24&000E of which 14 Dcost $20&000E were shipped.

Material re7uisition in ugust totaled $1'&000 and direct labor cost were $,&000. t
the beginning of the ear& 2014& a predetermined oerhead rate of 1/0 of
e?pected direct labor cost was established.
 

 The ugust !1& 2014 work in process inentor is:

a. $ 4&000
b. $14&000
c. $1%&000
d. $20&000

'. 9ob <o. 210 has& at the end of the second week in *ebruar& an accumulated total
cost of $4&200. 6n the third week& $1&000 of direct materials were used on 9ob&
together with $10 of indirect materials.

 Twent D20E hours of direct labor serices were applied to the 8ob at a cost of $/ per
hour.
Manufacturing oerhead was applied at the basis of $2./0 per direct labor hour for
?ed oerhead and $2 per hour for ariable oerhead.

 9ob <o. 210 was the onl 8ob completed during the third week.

 The total cost of 9ob Order <o. 210 is:

a. $/&!50
b. $/&!%0
c. $/&!/0
d. $/&400

,. Tillman Compan uses a 8ob)order cost sstem and has two production
departments& M and & 3udgeted manufacturing costs for 155' are as follows:

-epartment -epartment
M 
-irect materials ###################.. $'00&000
$100&000
-irect labor ###################### 200&000
  ,00&000
Manufacturing Oerhead ############## %00& 000
400&000

 The actual material and labor costs charged to 9ob <o. 4!2 during 15,0 were as
follows:

-irect material ####################.

$2/&000
-irect labor:
-epartment M ###############.. $ ,&000
-epartment  ################ 12&000
20&000
 

 Tillman applies manufacturing oerhead to production orders on the basis of direct)

labor cost using departmental rates predetermined at the beginning of the ear
based on the annual budget. The total manufacturing cost associated with 9ob <o.
4!2 for 15,0 should be:

March 1& balance ############################..

  $ 12&000
!1& direct materials ########################
40&000
!1& direct labor #########################....
!0&000
!1& direct oerhead ..#######################.
  2'&000
!1& to nished goods #######################.
  D 100&000 E

(orrel applies oerhead to production at a predetermined rate at 50 based on the

direct labor cost. 9ob <o. 2!2& the onl 8ob still in process at the end of March 155'&
has been charged with factor oerhead of $2&2/0. (hat was the amount of direct
materials charged to 9ob no. 2!2

a. $2&2/0
b. $2&/00
c. $4&2/0
d. $5&000

5. The work)in)$rocess account of the Malinta Compan which uses a 8ob order cost
sstem follows:

(ork)6n)$rocess
 FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF 
 
pril 1 3alance ####### $2/&000
*inished +oals ######. $12/&4/0
  -irect Materials ####### /0&000
  -irect abor #########. 40&000
  *ac. Oerhead pplied ### !0&000

Oerhead is applied to production at a predetermined rate& based on direct labor

cost. The work in process at pril !0 represents the cost of 9ob <o. 4/%& which has
been charged with applied oerhead of $2&400.
 The cost of direct materials charged to 9ob <o. 4/% and 9ob <o. ',5 amounted to:

a. $.,&'00
b. $'&%00
c. $4&/00
d. $4&200
 

10. The following data were taken from the records of Charming Compan:

0,G!1G14 05G!0G14
  6nentories:
"aw materials #######################.. $
 $/0&000
(ork in process ######################..
,0&000 5/&000
*inished goods #######################.
%0&000 ',&000

  "aw materials purchases& $4%&000.

  *actor oerhead& '/ of direct labor cost& $%!&000.
  elling and administratie e?penses& 12./ of sales& $2/&000
  <et income for eptember 155'& $2/&000.

(hat is the cost of raw materials inentor on ugust !1& 2014

a. $!0&000
b. $40&000
c. $4%&000
d. $/0&000

11. Maon Corporation manufactures rattan furniture sets for e?port and uses the
 8ob order cost sstem in accounting for its costs. Aou obtained from the
corporationBs books and records the following information for the ear ended
-ecember !1& 155':

) The work in process inentor on 9anuar 1 was 20 less than the work in
process inentor on -ecember !1.

) The total manufacturing costs added during 155' was $500&000 based on
actual direct materials and direct labor but with manufacturing oerhead
applied on actual labor pesos.

) The manufacturing oerhead applied to process was '2 of the direct labor
pesos& and it was e7ual to 2/ of the total manufacturing costs.

) The costs of the goods manufactured& also based on actual direct materials
actual direct labor and applied manufacturing oerhead was $,/0&000.

 The cost of direct materials used and the work in process inentor on -ecember
!1& 155' are:

  -irect materials =sed (6$ inentor& 12G!1G5'

  a. $1&0'/&000 $200&000
  b. $ !%2&/00 $2/0&000
 

  c. $ !12&/00 $2/0&000
  d. $1&100&000 $2'/&000

12. The -iamond Compan uses a 8ob order cost accounting sstem. Oerhead is
applied to production at a predetermined rate based on direct labor cost.

 The following postings appear in the ledger accounts of the compan for the month
of eptember 155':

-ebit
(ork in process& ept. 1
###############################.. $!0&000
-irect materials
####################################..
%0&000
*actor oerhead
###################################..
40&000
-irect labor
#######################################.
/0&000

On eptember !0& 155'& nished goods completed& from work in process cost
$1%0&000.

 9ob <o. !2' was the onl 8ob completed in eptember& and it has been charged
$4&%00 for factor oerhead.

-irect materials charged to 9ob <o. !2' was:

a. $10&!/0
b. $14&%/0
c. $ 5&%/0
d. $2/&000

1!. Hariet *actor uses a 8ob order cost sstem. $er compan records& the total
charges to work)in)process in March 155' were as follows:

-irect materials
##################################. $12/&000
-irect labor
####################################..
122&000
Oerhead I '/ of direct labor cost.

<o 8obs were in process at the beginning of the month. -uring the month& work)in)
process in the amount of $!10&/00 was charged to nished goods. On March !1&
155' the onl 8ob order remaining was 9ob <o. 100 with a direct labor cost of
$10&000
 

 The cost of direct materials charged to 9ob <o. 100 was:

a. $20&/00
b. $14&,'/
c. $10&/00
d. $1/&000

14. Marilag Compan had the following inentories:

pril 1 pril !0
-irect materials #########################...
$ !%&000 $4/&000
(ork in process #########################...
1,&000 2%&000
*inished goods ##########################..
/4&000 '2&000

 The following information were aailable for pril 155':

-irect labor
#####################################
$ %0&000
-irect labor rate per hour
############################# $'./0
Oerhead rate per direct labor hour
####################### 10.00
Cost of goods manufactured
###########################. 1/!&%/0

(hat is the prime cost during pril 155'

a. $,1&%/0
b. $,0&000
c. $50&000
d. $5%&000

1/. (orle Compan has underapplied oerhead of $4/&000 for the ear ended
-ecember !1& 155'. 3efore disposition of the underapplied oerhead& selected
-ecember !1& 155' balances from (orleBs accounting records are as follows:

ales
##########################################.
$1&200&000
Cost of goods sold #####..
############################.. '20&000
6nentories:
 

-irect materials
##############################. !%&000
(ork in process
##############################. /4&000
*inished goods
############################### 50&000

=nder (orleBs cost accounting sstem& oer) or underapplied oerhead is allocated

to appropriate inentories and cost of goods sold based on ear)end balances. 6n his
155' income statement& (orle should report cost of goods sold of

a. $%,2&/00
b. $%,4&000
c. $'/%&000
d. $'/'&/00

1%. 3lackwood uses a 8ob order cost sstem and applies factor oerhead to
production order on the basis of direct)labor cost. The oerhead rates for 155' are
200 for -epartment  and /0 for -epartment 3. 9ob 12!& started and completed
during 155'& was charged with the following costs:

-epartment
 3
-irect materials #######. $2/&000 $ /&000
-irect labor #######........  !0&000
*actor oerhead ######... 40&000 

 The total manufacturing cost associated with 9ob 12! should be

a. $1!/&000
b. $1,0&000
c. $15/&000
d. $240&000

1'. 3irk Co. uses a 8ob order cost sstem. The following debits DcreditE appeared in
3irkBs work)in)process account for the month of pril 155':

pril -escription mount

1 3alance $ 4&000
!0 -irect materials 24&000
!0 -irect labor 1%&000
!0 *actor Oerhead 12&,00
!0 To nished goods D 4,&000 E

3irk applies oerhead to production at a predetermined rate of direct labor costs.

 9ob <o. /& the onl 8ob still in process on pril !0& 155/ has been charged with direct
labor of $2&000. (hat was the amount of direct materials charged to 9ob <o. /

a. $ !&000
 

b. $ /&200
c. $ ,&,00
d. $24&000

1,. <ational Marketing Corp. uses a 8ob)order cost sstem. 6t has three production
departments& J& A and K. The manufacturing budget cost for 155' is as follows:

-ept. J -ept. A -ept.

K

-irect Materials $%00&000.00 $400&000.00 $200&000.00

-irect abor 200&000.00 /00&000.00
400&000.00
Mfg. Oerhead %00&000.00 100&000.00
200&000.00

*or 9ob <o. 01)50 completed in 155'& direct material cost was $'/&000.00L direct
labor& -ept. J& $40&000.00& -ept. A& $100&000.00& -ept. K& $200&000.00. The
corporation applies manufacturing oerhead to each 8ob on the basis of direct labor
cost using department rates predetermined at the beginning of the ear based on
manufacturing budget cost.

 The total manufacturing cost of 9ob <o. 01)50 is:

a. $2!/&000
b. $!10&000
c. $2,0&000
d. $1/0&000

15. "H Crafts manufactures to customer order using the 8ob order cost sstem. *or
the month 8ust ended& it registered the following data:

3eginning work in process D/ partiall

completed 8obsE
############################.. $!00&000
Orders completed D1,E
#############################.2&400&000
Orders shipped D14E
############################### 2&000&000
Materials re7uisitioned for the month
####################. 1&'00&000
-irect labor cost
################################... ,00&000
Oerhead rate #############################.
1/0 of direct labor cost

 The ending work in process inentor was:

a. $1&%00&000
b. $1&400&000
 

c. $ !00&000
d. $ '00&000

20. The accounting records for 155' of (agner Music Co. showed the following:

6ncrease in raw materials inentor

#######################. $ 4/&000
-ecrease in nished goods inentor
######################. 1/0&000
"aw material purchased
#############################.. 1&250&000
-irect labor paroll
################################.. %00&000
*actor oerhead
#################################.. 500&000
*reight)out
#####################################.
1!/&000

 The cost of raw materials used for the period amounted to:

a. $1&24/&000
b. $1&250&000
c. $1&!!/&000
d. $1&!,0&000

21. Inventoriable costs are reported as an asset when incurred and expensed on the income
statement when the product is sold.

 Answer : True   Difficulty: 2   Objective: 6

22. Cost of goods sold refers to the products brought to completion, whether the were started
 before or during the current accounting period.

 Answer : !alse   Difficulty: 1   Objective: 6

Cost of goods manufactured  refers to the products  brought to
completion& whether the were started before or during the current
accounting period.

2". !or a manufacturing compan, direct labor costs ma be included in

a. direct materials inentor onl.
b. merchandise inentor onl.
c. both work)in)process inentor and nished goods inentor.
d. direct materials inentor& work)in)process inentor& and nished
goods inentor accounts.
 

 Answer : c   Difficulty: "   Objective: 6

2#. !or a manufacturing compan, indirect manufacturing costs ma be included in

a. direct materials inentor onl.
b. merchandise inentor onl.
c. both work)in)process inentor and nished goods inentor.
d. direct materials inentor& work)in)process inentor& and nished
goods inentor accounts.

 Answer : c   Difficulty: "   Objective: 6

 

2/. *or a manufacturing)sector compan& the cost of factor insurance is

classied as a
a. direct material cost.
b. direct manufacturing labor cost.
c. manufacturing oerhead cost.
d. period cost.

 Answer : c   Difficulty: 1   Objective: 6

2%. *or a printing compan& the cost of paper is classied as a

a. direct material cost.
b. direct manufacturing labor cost.
c. manufacturing oerhead cost.
d. period cost.

 Answer : a   Difficulty: 1   Objective: 6

2'. (ages paid to machine operators on an assembl line are classied as a

a. direct material cost.
b. direct manufacturing labor cost.
c. manufacturing oerhead cost.
d. period cost.

 Answer : b   Difficulty: 1   Objective: 6

2$. %anufacturing overhead costs in an automobile manufacturing plant %&'T li(el include
a. labor costs of the painting department.
b. indirect material costs such as lubricants.
c. sales commissions.
d. steering wheel costs.

 Answer : b   Difficulty: 1   Objective: 6

2). %anufacturing overhead costs are also referred to as

a. indirect manufacturing costs.
b. prime costs.
 

c. period costs.
d. conersion costs.

 Answer : a   Difficulty: 1   Objective: 6

!0. Manufacturing costs include all >JC>$T

a. costs incurred inside the factor.
b. both direct and indirect costs.
c. both ariable and ?ed costs.
d. both inentoriable and period costs.

 Answer : d   Difficulty: 2   Objective: *

!1. 6nentoriable costs

a. include administratie and marketing costs.
b. are e?pensed in the accounting period sold.
c. are particularl useful in management accounting.
d. are also referred to as nonmanufacturing costs.

 Answer : b   Difficulty: 2   Objective: *

!2. 6nentoriable costs are e?pensed on the income statement

a. when direct materials for the product are purchased.
b. after the products are manufactured.
c. when the products are sold.
d. not at an particular time& it aries.

 Answer : c   Difficulty: 2   Objective: *

 

"". Costs that are initiall recorded as assets and expensed when sold are referred to as
a. period costs.
b. inentoriable costs.
c. ariable costs.
d. ?ed costs.

 Answer : b   Difficulty: 2   Objective: *

!4. *or merchandising companies& inentoriable costs include

a. the cost of the goods themseles.
b. incoming freight costs.
c. insurance costs for the goods.
d. all of the aboe.

 Answer : d   Difficulty: 2   Objective: *

!/. *or manufacturing rms& inentoriable costs include

a. plant superisor salaries.
b. research and deelopment costs.
c. costs of dealing with customers after the sale.
d. distribution costs.

 Answer : a   Difficulty: 2   Objective: *

!%.  plant manufactures seeral dierent products. The wages of the plant
superisor can be classied as aDnE
a. direct cost.
b. inentoriable cost.
c. ariable cost.
d. period cost.

 Answer : b   Difficulty: 2   Objective: *

!'. The cost of inentor reported on the balance sheet ma include all of
the following >JC>$T
 

a. customer)serice costs.
b. wages of the plant superisor.
c. depreciation of the factor e7uipment.
d. the cost of parts used in the manufacturing process.

 Answer : a   Difficulty: 2   Objective: *

!,. *or a computer manufacturer& period costs include the cost of 
a. the keboard.
b. labor used for assembl and packaging.
c. distribution.
d. assembl)line e7uipment.

 Answer : c   Difficulty: 1   Objective: *

 

!5. $eriod costs

a. include onl ?ed costs.
b. seldom inNuence nancial success or failure.
c. include the cost of selling& deliering& and after)sales support for
customers.
d. should be treated as an indirect cost rather than as a direct
manufacturing cost.

 Answer : c   Difficulty: 2   Objective: *

40. $eriod costs

a. are treated as e?penses in the period the are incurred.
b. are directl traceable to products.
c. include direct labor.
d. are also referred to as manufacturing oerhead costs.

 Answer : a   Difficulty: 2   Objective: *

41. (hich of the following is <OT a period cost

a. Marketing costs
b. +eneral and administratie costs
c. "esearch and deelopment costs
d. Manufacturing costs

 Answer : d   Difficulty: 1   Objective: *

42. Costs e?pensed on the income statement in the accounting period

incurred are referred to as
a. direct costs.
b. indirect costs.
c. period costs.
d. inentoriable costs.

 Answer : c   Difficulty: 1   Objective: *

#". +rime costs include

 

a. direct materials and direct manufacturing labor costs.

b. direct manufacturing labor and manufacturing oerhead costs.
c. direct materials and manufacturing oerhead costs.
d. onl direct materials.

 Answer : a   Difficulty: 1   Objective: *

##. Conversion costs include

a. direct materials and direct manufacturing labor costs.
b. direct manufacturing labor and manufacturing oerhead costs.
c. direct materials and manufacturing oerhead costs.
d. onl direct materials.

 Answer : b   Difficulty: 1   Objective: *

 

#. Total manufacturing costs e-ual

a. direct materials  prime costs.
b. direct materials  conersion costs.
c. direct manufacturing labor costs  prime costs.
d. direct manufacturing labor costs  conersion costs.

 Answer : b   Difficulty: 2   Objective: *

#6. The cost classification sstem used b manufacturing firms include all of the following
/C+T
a. direct materials costs and conersion costs.
b. direct materials costs& direct manufacturing labor costs& and
manufacturing oerhead costs.
c. indirect materials costs& indirect manufacturing labor costs& and
manufacturing oerhead costs.
d. prime costs and manufacturing oerhead costs.

 Answer : c   Difficulty: 2   Objective: *

4'. Manufacturing oerhead costs ma include all >JC>$T

a. salaries of the plant 8anitorial sta.
b. labor that can be traced to indiidual products.
c. wages paid for unproductie time due to machine breakdowns.
d. oertime premiums paid to plant workers.

 Answer : b   Difficulty: "   Objective: *

#$. 0hich of the following formulas determine cost of goods sold in a merchandising entit
a. 3eginning inentor  $urchases  >nding inentor P Cost of
goods sold
b. 3eginning inentor  $urchases ) >nding inentor P Costs of
goods sold
c. 3eginning inentor ) $urchases  >nding inentor P Cost of goods
sold
 

d. 3eginning inentor ) >nding inentor ) $urchases P Cost of goods

sold

 Answer : b   Difficulty: 1   Objective: *

#). 0hich of the following formulas determine cost of goods sold in a manufacturing entit
a. 3eginning work)in)process inentor  Cost of goods manufactured
) >nding work)in)process inentor P Cost of goods sold
b. 3eginning work)in)process inentor  Cost of goods manufactured
 >nding work)in)process inentor P Cost of goods sold
c. Cost of goods manufactured ) 3eginning nished goods inentor )
>nding nished goods inentor P Cost of goods sold.
d. Cost of goods manufactured  3eginning nished goods inentor )
>nding nished goods inentor P Cost of goods sold.

 Answer : d   Difficulty: 2   Objective: *

/0. =nderapplied oerhead is

a. reported as unearned reenue in the balance sheet.
b. added to the Manufacturing Oerhead account.
c. added to Cost of +oods old.
d. credited to Cost of +oods old.

 ANSWER: C 

1. +roduct costs ma refer to

a. inventoriable costs for external reporting.
 b. design costs plus manufacturing costs for government contracts.
c. all costs incurred along the value chain for pricing decisions.
d. all of the above refer to product costs, it varies.

 Answer : d   Difficulty: "   Objective: $

 T@> *OO(6<+ 6<*O"MT6O< $$6> TO Q=>T6O< /2 T@"O=+@ /!.

 The following information pertains to lleighBs Manne7uins:
Manufacturing costs $ 1&/00&000
 

=nits manufactured !0&000

=nits sold 25&/00 units sold for $,/ per unit
3eginning inentor 0 units

/2. (hat is the aerage manufacturing cost per unit

a. $/0.00
b. $/0.,/
c. $1'.%/
d. $,/.00

 Answer : a   Difficulty: 1   Objective: #

R1&/00&000 G !0&000 P R/0.00

/!. (hat is the amount of ending nished goods inentor

a. $42&/00
b. $2/&424
c. $2/&000
d. $1&4'/&000

 Answer : c   Difficulty: 2   Objective: #

D!0&000 ) 25&/00E ? R/0.00 P R2/&000

54. Problem :

 firm has 1,333 45 items which it counts ever wee(, i.e.,  das7, #,333 485 items counted
ever #3 das7, and $,333 4C5 items counted ever 133 das7. 9ow man items should be
counted per da

55. Problem :

ssume ou have a product with the following parameters:

nnual emand ; "63 units
 

9olding cost per ear ; +1.33 per unit

&rder cost ; +133 per order 
0hat is the &< for this product

56. Problem :

=iven the data from +roblem ", and assuming a "33>da wor( ear, how man orders should be
 processed per ear 0hat is the expected time between orders

57. Problem :

0hat is the total cost for the inventor polic used in +roblem "

58. Problem :

If demand for an item is " units per da, and deliver lead>time is 1 das, what should we use
for a simple re>order point

59. Problem :

?itel Corp sells 1,"3 of its special decorator light switch per ear and places orders for "33 of
these switches at a time. ssuming no safet stoc(s, ?itel estimates a 3@ chance of no
shortages in each ccle and the probabilit of shortages of , 13, and 1 units as 3.2, 3.1, and
3.1 respectivel. The carring cost per unit per ear is calculated as + and the stoc(out cost is
estimated at +6 +" lost profit per switch and another +" loss of goodwill or future sales7. 0hat
level of safet stoc( should ?itel use for this product Consider safet stoc( of 3, , 13, and 1
units.7

60. Problem :

+resume that ?itel carries a modern white (itchen ceiling lamp that is -uite popular. The
anticipated demand during lead>time can be approximated b a normal curve having a mean of
1$3 units and a standard deviation of #3 units. 0hat safet stoc( should ?itel carr to achieve a
)@ service level
 

ANSWERS

Problem 1:

Item Class <uantit +olic Aumber of Items to Count +er a

 1,333 ver  das 1333B ; 233Bda

8 #,333 ver #3 das #333B#3;133Bda

C $,333 ver 133 das $333B133;$3Bda

Total items to count: "$3Bda

Problem 2:

2  emand  &rder Cost 2  "63 133

 EOQ   = = = *2333 = 26$."" items
9olding cost 1

The &< model assumes an real -uantit is feasible. The actual -uantit ordered ma need to
 be an integer value and ma be affected b pac(aging or other item characteristics. In the
following +roblems an &< of 26$ is assumed.

Problem 3:

emand "63
 N  = = = 1."# orders per ear 
Q 26$

0or(ing das
T   = = "33 B1."# = 22# das between orders
xpected number of orders

Problem 4:
 

emand &rder Cost <uantit of Items7 9olding Cost7

TC  = +
Q 2
"63 133 26$ 1
= + = 1"# + 1"# = D26$
26$ 2

 Aotice that at the &< Total 9olding Cost and Total &rdering Cost are e-ual.

Problem 5:

 ROP  ; emand during lead>time ; "  1 ; # units

Problem 6 :

'afet stoc( 3 units:

Carring cost e-uals Eero.

Total 'toc(out Costs ; stoc(out costs  possible units of shortage  probabilit of shortage 
number of orders per ear7

1",3 1",3 1",3

S 3  = 6,3.2 + 6133.1, + 61,3.1, = D12$.2,
"33 "33 "33

'afet stoc( , units:

Carring cos t D,  per unit * , units   D2,

1",3 1",3
S ,  = 6,3.1, + 6133.1, = D63.*,
"33 "33
'toc(out cost:
Total Cost ; Carring cost F 'toc(out cost = D2, + D63.*, = D$,.*,

'afet stoc( 13 units:

 

Carring cos t 13  ,   D,3.33

1",3
'13 6 * ,* 31,
. *   D23.2,
"33
'toc(out cost:
Total Cost ; Carring cost F 'toc(out cost = D,3.33 + D23.2, = D*3.2,

'afet stoc(  1,:

 

Carring cos t 1,* ,   D*,.33

'toc(out cos ts
  3
 There is no shortage if 1 units are maintained7
Total Cost ; Carring cost F 'toc(out cost = D*,.33 + D3 = D*,.33

Therefore: %inimum cost comes from carring a 13 unit safet stoc(.

Problem 7 :

To find the safet stoc( for a )@ service level it is necessar to calculate the )th percentile on
the normal curve. Gsing the standard Aormal table from the text, we find the H value for 3.) is
1.6 standard units. The safet stoc( is then given b:

1.6,* #37 1$3 66 1$3 2#6 Ceiling ?amps