Shortage Cost


a) Explain the following terms in inventory management:
i. Carrying cost
ii. Shortage cost
iii. Ordering cost
b) Write short notes on the following:
i. Necessity for inventory control
ii. Functions performed by inventory
iii. Classification of inventories
c) A company uses Kshs. 10,000 worth of an item during the year. The ordering costs are Kshs. 25 per order and carrying charges are 12.5% of the average inventory value. Find:
i. The economic order quantity,
ii. Number of orders per year
iii. Time period per order
iv. The total cost


a) Define a queue and explain the various queue disciplines
b) Explain characteristics and classification of queuing models
c) Workers come to tool store room to receive special tools (required by them) for accomplishing a particular project assigned to them. The average time between two arrivals is 60 seconds and the arrivals are assumed to be Poisson distribution. The average service time (of the tool room attendant) is 40 seconds. Determine:
i. Average queue length,
ii. Average length of non-empty queues
iii. Average number of workers in system including the worker being attended,
iv. Mean waiting time of an arrival
v. Average waiting time of an arrival (worker) who waits, and
vi. The type of policy to be established. In other words, determine whether to go in for an additional store room attendant who will minimize the combined cost of attendant’s idle time and the cost of workers waiting time. Assume the charge of a skilled worker is Kshs. 4 per hour and that of tool store room attendant is Kshs. 0.75 per hour.

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