Super Motors manufactures and sells a wide variety of motors to industrial customers. All motors cost about the same and are assembled on the same line. Switching over from assembling one motor to another requires about two hours. Super assembles motors to be stocked in a distribution center from where they are shipped as orders arrive. HP is the highest-selling motor (in terms of units sold) and LP the lowest selling. Which of the following statements about the average cycle inventory HP motors is TRUE?

A. Higher than the cycle inventory of LP motors.

B. Lower than the cycle inventory of LP motors.

C. Same as the cycle inventory of LP motors.

D. None of the above.

A. Higher than the cycle inventory of LP motors.

Explanation:

Given that:

HP is the highest-selling motor (in terms of units sold) and LP the lowest selling.

The average cycle stock is about half-a-period's demand less the target cycle stock. Thus, the average cycle inventory is half of the order size. The order size is directly proportional to the square root of demand,R. This implies that the average cycle inventory is proportional to the square root of the demand, R. Since, R, the demand is high for HP, the order size also becomes more which in turns leads to the average cycle inventory being more. Therefore, the average cycle inventory of HP motors is higher than the cycle inventory of LP motors.