Management Notes

Management Notes

Reference Notes for Management
The main trait of a single-period model is that:

The main trait of a single-period model is that:

by

The main trait of a single-period model is that:

 Options:

A. inventory has limited value after a certain period of time.
B. it has the largest EOQ sizes.
C. the order quantity should usually equal the expected value of demand.
D. supply is limited.
E. the cost of a shortage cannot be determined accurately.

The Correct Answer Is:

A. inventory has limited value after a certain period of time.

Correct Answer Explanation: A. inventory has limited value after a certain period of time.

In a single-period model, the primary characteristic is that inventory has limited value after a certain period of time. This model is specifically designed to address situations where a business needs to make a one-time decision on how much inventory to order or produce for a single selling season or period, typically with uncertain demand.

The Correct Answer (A): In this model, inventory value diminishes as it approaches the end of the selling season or period. The idea is to balance the cost of stocking excess inventory against the cost of potential lost sales due to stockouts.

After the selling season concludes, any remaining inventory usually holds little to no value for the business. Hence, the primary concern becomes optimizing the order quantity to maximize expected profit, considering the limited time frame for selling goods. This makes Answer A, stating that “inventory has limited value after a certain period of time,” the correct choice.

Why the Other Options are Incorrect?

Now, let’s delve into why the other options are not the defining trait of a single-period model:

B. It has the largest EOQ sizes.

The Economic Order Quantity (EOQ) is a calculation used in inventory management models for continuous or ongoing inventory replenishment, not specifically for single-period models.

Single-period models focus on ordering decisions for a one-time selling period rather than managing continuous replenishment, so this statement doesn’t align with the characteristics of a single-period model.

C. The order quantity should usually equal the expected value of demand.

While matching order quantity to the expected demand may be a consideration in inventory management, it’s not the defining trait of a single-period model.

Single-period models aim to strike a balance between overstocking and stockouts for a one-time selling period, considering uncertain demand and limited inventory value at the end of that period. Thus, this statement doesn’t capture the essence of a single-period model.

D. Supply is limited.

The limitation of supply is a general concept and doesn’t uniquely define a single-period model. In various inventory management scenarios, supply limitations can be present irrespective of whether it’s a single-period model or a continuous replenishment model.

Single-period models specifically emphasize the time-limited nature of inventory value rather than a particular constraint on supply.

E. The cost of a shortage cannot be determined accurately.

While managing shortages is a concern in inventory management, particularly in single-period models where stockouts can lead to lost sales, the inability to precisely determine the cost of a shortage isn’t the main trait of a single-period model.

The focus of these models is to optimize order quantities considering uncertain demand and limited inventory value at the end of the period, rather than solely revolving around the inability to precisely quantify shortage costs.

In essence, a single-period model revolves around making optimal ordering decisions for a one-time selling season or period, balancing the trade-off between holding excess inventory and facing stockouts, given the diminishing value of inventory as the period concludes.

This characteristic distinguishes it from continuous or ongoing inventory management models.

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