Zainab Opens an Aquarium Store in a Lively Shopping Mall

question 52

Multiple Choice

Zainab opens an aquarium store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. She collects the following data with respect to this pump's sales:
$\begin{array} { l l } \text { Demand } = 5 \text { units per week } & \text { Store operates } 50 \text { weeks } / \text { year } \\\text { Order cost } = \$ 40 / \text { order } & \text { Lead time } = 3 \text { weeks } \\\text { Item cost } = \$ 80 / \text { pump } & \\\text { Inventory-holding cost } = 15 \% \text { per year } &\end{array}$
-If Zainab decides to use a fixed-period system (FPS) , the fixed-order interval based on store economics is:

• A) less than 5 weeks.
• B) more than 5 but less than or equal to 10 weeks.
• C) more than 10 but less than or equal to 15 weeks.
• D) more than 15 but less than or equal to 20 weeks.

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Definitions:

Net Income

The total profit of a company after all expenses, including taxes and operational costs, have been deducted from total revenues.

Up-front Costs

Initial expenses required to start a project, product, or service before any financial return is seen.

Discounted Payback Period

The time required to recoup the cost of an investment while considering the time value of money, typically shorter than simple payback period.

Required Return

The least profit anticipated by an investor from an investment in a certain asset, given its risk profile.