1. In an ideal inventory control system, the economic lot size for a part is 1000. If the annual demand for the part is doubled, the new economic lot size required will be
(a) 500
(b) 2000
(c) 1000/\sqrt { 2 }
(d) 1000\sqrt { 2 }
(2 Mark, 1989)

Ans: d
2. When the annual demand of a product is 24000 units, the EOQ (Economic order Quantity) is 2000 units. If the annual demand is 48000 units the most appropriate EOQ will be
(a) 1000 units
(b) 2000 units
(c) 2800 units
(d) 4000 units
(2 Mark, 1991)

Ans: c
3. If the demand for an item is doubled and the ordering cost halved, the economic order quantity
(a) Remains unchanged
(b) Increases by a factor of
(c) Is doubled
(d) Is halved
(1 Mark, 1995)

Ans: a
4. Setup costs do not include
(a) Labour cost of setting up machines
(b) Ordering cost of raw material
(c) Maintenance cost of the machines
(d) Cost of processing the work piece
(1 Mark, 1997)

Ans: b
5. One of the following statements about PRS (Periodic Reordering System) is not true. Identify,
(a) PRS requires continuous monitoring of inventory levels
(b) PRS is useful in control of perishable items
(c) PRS provides basis for adjustments to account for variations in demand
(d) In PRS, inventory holding costs are higher than in Fixed Recorder Quantity System
(1 Mark, 1998)

Ans: a
6. In inventory planning, extra inventory is unnecessarily carried to the end of the planning period when using one of the following lot size decision policies:
(a) Lot – for – lot production
(b) Economic Order Quantity (EOQ) lot size
(c) Period Order Quantity (POQ) lot size
(d) Part Period total cost balancing
(1 Mark, 1998)

Ans: a
7. In computing Wilson’s economic lot size for an item, by mistake the demand rate estimate used was 40% higher than the true demand rate. Due to this error in the lot size computation, the total cost of setups plus inventory holding per unit time, would rise above the true optimum by approximately
(a) 1.4%
(b) 6.3%
(c) 18.3%
(d) 8.7%
(2 Mark, 1999)

Ans: c
8. Market demand for springs is 8,00,000 per annum. A company purchases these springs in lots and sells them. The cost of making a purchase order is Rs.1,200. The cost of storage of springs is Rs.120 per stored piece per annum. The economic order quantity is
(a) 400
(b) 2,828
(c) 4,000
(d) 8,000
(2 Mark, 2003)

Ans: c
10. A company has an annual demand of 1000 units, ordering cost of Rs.100/order and carrying cost of Rs.100/unit –year. If the stockout costs are estimated to be nearly Rs.400 each time the company runs outofstock, the safety stock justified by the carrying cost will be
(a) 4
(b) 20
(c) 40
(d) 100
(2 Mark, 2004)

Ans: c
12. A stockist wishes to optimize the number of perishable items he needs to stock in any month in his store. The demand distribution for this perishable item is:
The stockist pays Rs.70 for each item and he sells each at Rs.90. if the stock is left unsold in any month, he can sell the item at Rs.50 each. There is no penalty for unfulfilled demand. To maximize the expected profit, the optimal stock level is:
(a) 5 units
(b) 4 units
(c) 3 units
(d) 2 units
(2 Mark, 2006)

Ans: b
14. Capacities of production of an item over 3 consecutive months in regular time are 100, 100 and 80 and in overtime are 20, 20 and 40. The demands over those 3 months are 90, 130 and 110. The cost of production in regular time and overtime are respectively Rs. 20 per item and Rs. 24 per item. Inventory carrying cost is Rs. 2 per item per month. The levels of starting and final inventory are nil. Backorder is not permitted. For minimum cost of plan, the level of planned production in overtime in the third month is
(a) 40
(b) 30
(c) 20
(d) 0
(2 Mark, 2007)

Ans: b
15. The maximum level of inventory of an item is 100 and it is achieved with infinite replenishment rate. The inventory becomes zero over one and half month due to consumption at a uniform rate. This cycle continues throughout the year. Ordering cost is Rs.100 per order and inventory carrying cost is Rs.10 per item per month. Annual cost (in Rs.) of the plan, neglecting material cost, is
(a) 800
(b) 2800
(c) 4800
(d) 6800
(2 Mark, 2007)

Ans: d
16. In a machine shop, pins of 15mm diameter are produced at a rate of 1000 per month and the same is consumed at a rate of 500 per month. The production and consumption continue simultaneously till the maximum inventory is reached. Then inventory is allowed to reduce to zero due to consumption. The lot size of production is 1000. If backlog is not allowed, the maximum inventory level is
(a) 400
(b) 500
(c) 600
(d) 700
(2 Mark, 2007)

Ans: b
17. The net requirements of an item over 5 consecutive weeks are 500152020. The inventory carrying cost and ordering cost are Rs.1 per item per week and Rs.100 per order respectively. Starting inventory is zero. Use “Least Unit Cost Technique” for developing the plan. The cost of the plan (in Rs.) is
(a) 200
(b) 250
(c) 225
(d) 260
(2 Mark, 2007)

Ans: b
18. A company uses 2555 units of an item annually. Delivery lead time is 8 days. The recorder point (in number of units) to achieve optimum inventory is
(a) 7
(b) 8
(c) 56
(d) 60
(2 Mark, 2009)

Ans: c
19. Annual demand for window frames is 10000. Each frame costs Rs. 200 and ordering cost is Rs. 300 per order. Inventory holding cost is Rs. 40 per frame per year. The supplier is willing to offer 2% discount if the order quantity is 1000 or more, and 4% if order quantity is 2000 or more. If the total cost is to be minimized, the retailer should
(a) Order 200 frames every time
(b) Accept 2% discount
(c) Accept 4% discount
(d) Order Economic Order Quantity
(2 Mark, 2010)

Ans: c
20. A component can be produced by any of the four processes I, II, III and IV. The fixed cost and the variable cost for each of the processes are listed below. The most economical process for producing a batch of 100 pieces is
Process 
Fixed cost (in Rs.) 
Variable cost per piece (in Rs.) 
I 
20 
3 
II 
50 
1 
III 
40 
2 
IV 
10 
4 
(a) I
(b) II
(c) III
(d) IV
(1 Mark, 2014[2])

Ans: b
21. Consider the following data with reference to elementary deterministic economic order quantity model
Annual demand of an item 
100000 
Unit price of the item (in Rs.) 
10 
Inventory carrying cost per unit per year (in Rs.) 
1.5 
Unit order cost (in Rs.) 
30 
The total number of economic orders per year to meet the annual demand is ____.
(2 Mark, 2014[2])

Ans: 50
22. A manufacturer can produce 12000 bearings per day. The manufacturer received an order of 8000 bearings per day from a customer. The cost of holding a bearing in stock is Rs. 0.20 per month. Setup cost per production run is Rs. 500. Assuming 300 working days in a year, the frequency of production run should be
(a) 4.5 days
(b) 4.5 months
(c) 6.8 days
(d) 6.8 months
(2 Mark, 2014[3])

Ans: c
23. Demand during lead time with associated probabilities is shown below:
Demand 
50 
70 
75 
80 
85 
Probability 
0.15 
0.14 
0.21 
0.20 
0.30 
Expected demand during lead time is _______.
(1 Mark, 2014[4])

Ans: 74.55
24. Annual demand of a product is 50000 units and the ordering cost is Rs. 7000 per order. Considering the basic economic order quantity model, the economic order quantity is 10000 units. When the annual inventory cost is minimized, the annual inventory holding cost (in Rs.) is _______ .
(1 Mark, 2015[2])

Ans: 35000
25. A manufacturer has the following data regarding a product:
Fixed cost per month = Rs. 50000,
Variable cost per unit = Rs. 200
Selling price per unit = Rs. 300,
Production capacity = 1500 units per month
If the production is carried out at 80% of the rated capacity, then the monthly profit (in Rs.) is _____.
(2 Mark, 2015[2])

Ans: 70000
26. The annual requirement of rivets at a ship manufacturing company is 2000 kg. The rivets are supplied in units of 1 kg costing Rs. 25 each. If it costs Rs. 100 to place an order and the annual cost of carrying one unit is 9% of its purchase cost, the cycle length of the order (in days) will be _____.
(2 Mark, 2015[3])

Ans: 77
27. The annual demand for an item is 10,000 units. The unit cost is Rs. 100 and inventory carrying charges are 14.4% of the unit cost per annum. The cost of one procurement is Rs. 2000. The time between two consecutive orders to meet the above demand is _______ month(s).
(2 Mark, 2016[1])

Ans: 2
28. A food processing company uses 25,000 kg of corn flour every year. The quantitydiscount price of corn flour is provided in the table below.
Quantity (kg) 
Unit price (Rs/kg) 
1749 
70 
7501499 
65 
1500 and above 
60 
The order processing charges are Rs. 500/order. The handling plus carryover charge on an annual basis is 20% of the purchase price of the corn flour per kg. The optimal order quantity (in kg) is _______.
(2 Mark, 2016[2])

Ans: 1500
29. A local tyre distributor expects to sell approximately 9600 steel belted radial tyres next year. Annual carrying cost is Rs. 16 per tyre and ordering cost is Rs. 75. The economic order quantity of the tyres is
(a) 64
(b) 212
(c) 300
(d) 1200
(1 Mark, 2018[2])

Ans: c