Scenario 9.1 Shipments of Product a from a Distribution Center to a to a Retailer

question 145

Multiple Choice

Scenario 9.1
Shipments of Product A from a distribution center to a retailer are made in lots of 350. The retailer's average demand for Product A is 75 units per week. The lead time from distributor to retailer is 3 weeks. The retailer pays for the shipments when they leave the distributor. The distributor has agreed to reduce the lead time to 2 weeks if the retailer will purchase quantities of 400 per shipment instead of 350 units per shipment.
-Refer to Scenario 9.1. The net impact on the retailer will be:

• A) no net change in average cycle and pipeline inventories.
• B) a net average increase in cycle and pipeline inventories of 50 units.
• C) a net average decrease in cycle and pipeline inventories of 75 units.
• D) a net average decrease in cycle and pipeline inventories of 50 units.

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Definitions:

Total Cost

The complete cost of production, including both fixed and variable costs, incurred by a business in producing its goods or services.

Marginal Cost

The increase in total cost that arises from producing an additional unit of output.

Lawn-mowing

The act of cutting the grass in a garden or lawn to maintain its appearance and health.

Perfectly Competitive

A market structure where many firms offer a homogeneous product, there are no barriers to entry or exit, and all firms are price takers.