question

One important use of inventories in manufacturing is to decouple operations through the use of work in process inventories.

answer

TRUE Decoupling operations is an important use of inventories.

question

The objective of inventory management is to minimize the cost of holding inventory.

answer

FALSE The objective of inventory management is to allow satisfactory customer service while keeping costs down.

question

A retail store that carries twice the inventory as its competitor will provide twice the customer service level.

answer

FALSE There is a limit to how high service level can go; if the competitor's service level is 90%, the retailer can't double that.

question

The overall objective of inventory management is to achieve satisfactory levels of customer service while keeping inventory costs reasonable.

answer

TRUE This is the overall objective of inventory management.

question

The two main concerns of inventory control relate to the costs and the level of customer service.

answer

TRUE These are the essential facets of inventory control.

question

To provide satisfactory levels of customer service while keeping inventory costs within reasonable bounds, two fundamental decisions must be made about inventory: the timing and size of orders.

answer

TRUE These are the fundamental decisions regarding inventory control.

question

In the EOQ formula, holding costs under 10% are expressed as percentages, above 10% are expressed as annual unit costs.

answer

FALSE Holding costs are expressed in monetary terms, whether as a set value or as a percentage of the per-unit cost.

question

DVD recorders would be an example of independent demand items.

answer

TRUE Components of the DVD recorders would be dependent demand items.

question

Reorder point models are primarily used for dependent demand items.

answer

FALSE Reorder point models are primarily used for independent demand items.

question

An example of inventory holding cost is the cost of moving goods to temporary storage after receipt from a supplier.

answer

FALSE These are ordering costs.

question

Decoupling operations applies to the railroad industry.

answer

FALSE Decoupling refers to buffering operations in manufacturing.

question

Interest, insurance, and opportunity costs are all associated with holding costs.

answer

TRUE These are holding costs.

question

The A-B-C approach involves classifying inventory items by unit cost, with expensive items classified as 'A' items and low cost items classified as 'C' items.

answer

FALSE A-B-C approach classifies inventory according to some measure of importance.

question

An inventory buffer adds value and lowers cost in all supply chains.

answer

FALSE Many buffers increase costs across supply chains.

question

In the A-B-C approach, C items typically represent about 15 percent of the number of items, but 60 percent of the dollar usage.

answer

FALSE C items typically represent about 60 percent of the number of items and about 15 percent of the dollar usage.

question

EOQ inventory models are basically concerned with the timing of orders.

answer

FALSE EOQ models are concerned with the size of orders.

question

The average inventory level is inversely related to order size.

answer

FALSE The average inventory level is positively related to order size.

question

The average inventory level and the number of orders per year are inversely related: As one increases, the other decreases.

answer

TRUE These are inversely related.

question

The EOQ should be regarded as an approximate quantity rather than an exact quantity. Thus, rounding the calculated value is acceptable.

answer

TRUE The total cost function is relatively flat, so rounding costs little.

question

Carrying cost is a function of order size; the larger the order, the higher the inventory carrying cost.

answer

TRUE Larger order quantities lead to higher inventory carrying cost.

question

Understocking an inventory item is a sure sign of inadequate inventory control.

answer

FALSE Having an occasional stockout is not necessarily a sign of inadequate inventory control.

question

Annual ordering cost is inversely related to order size.

answer

TRUE Annual ordering cost decreases as order size increases.

question

The total cost curve is relatively flat near the EOQ.

answer

TRUE Thus approximating the EOQ can be a very good solution.

question

Because price isn't a factor in the EOQ formula, quantity discounts won't affect EOQ calculations.

answer

FALSE If quantity discounts are offered, the EOQ might vary based on different holding costs.

question

In the quantity discount model, if holding costs are given as a percentage of unit price, a graph of the total cost curves will have the same EOQ for each curve.

answer

FALSE Total cost curves will differ across the price levels.

question

In the quantity discount model, the optimum quantity will always be found on the lowest total cost curve.

answer

FALSE The optimum quantity might actually be when the discount is passed up.

question

ROP models indicate to managers the time between orders.

answer

FALSE ROP models indicate when, with regard to on-hand inventory, orders should be placed.

question

When to order can be calculated by the ROP and expressed as a quantity.

answer

TRUE ROP models indicate when, with regard to on-hand inventory, orders should be placed.

question

The rate of demand is an important factor in determining the ROP.

answer

TRUE The demand rate multiplied by the lead time is a major part of the ROP.

question

The inventory value of the supply chain exceeds the inventory value of the organization's work in process inventory.

answer

TRUE There can be raw materials and finished goods inventory at the organization. Other organizations in the supply chain will have inventories, too.

question

Safety stock is held because we anticipate future demand.

answer

FALSE Safety stock is held because we anticipate fluctuations in future demand or in lead time

question

Variability in demand and/or lead time can be compensated for by safety stock.

answer

TRUE Safety stock can be used to accommodate these.

question

Solving quality problems can lead to lower inventory levels.

answer

TRUE Leaning out the organization can be facilitated by solving quality problems.

question

ROP models assume that demand during lead time is composed of a series of dependent daily demands.

answer

FALSE ROP models assume that demand during lead time is composed of a series of independent daily demands.

question

Profit margins tend to be inversely related to inventory turns.

answer

TRUE This is typically the case.

question

In the fixed-order interval model, the order size is the same for each order.

answer

FALSE Order size varies from order to order in a fixed-order interval model.

question

The fixed-order interval model requires a continuous monitoring of inventory levels.

answer

FALSE The fixed-order interval model leads to periodic monitoring of inventory levels.

question

Discrete stocking levels are used when an organization doesn't want visibility of inventory levels.

answer

FALSE Discrete stocking refers to having to stock a discrete number of units.

question

The fixed-order interval model requires a larger amount of safety stock than the ROP model for the same risk of a stockout.

answer

TRUE Fixed-order intervals typically carry more safety stock.

question

The single-period model can be very helpful in determining when to order.

answer

FALSE The single-period model helps determine how many to order.

question

The single-period model can be very helpful in determining how much to order.

answer

TRUE The single-period model helps determine how many to order.

question

Monitoring inventory turns over time can be used as a measure of performance.

answer

TRUE Greater turnover often implies better performance.

question

A single-period model would be used mainly by organizations going out of business.

answer

FALSE The single-period model applies to many regularly occurring circumstances.

question

The basic EOQ model ignores the purchasing cost.

answer

TRUE Only if quantity discounts are offered does purchasing cost enter into EOQ analysis.

question

When the item is offered for resale, shortage costs in the single-period model can include a charge for loss of customer goodwill.

answer

TRUE Greater loss of goodwill would equate with a higher shortage cost.

question

In the single-period model, the service level is the probability that demand will not exceed the stocking level in any period.

answer

TRUE If demand exceeds the stocking level, a stockout as occurred.

question

A quantity discount will lower the reorder point.

answer

FALSE The reorder point is independent of quantity discounts.

question

It is critical that the exact quantity calculated in the EOQ model be ordered.

answer

FALSE Because the total cost curve is flat, modest rounding of the EOQ is permissible.

question

Safety stock eliminates all stock outs.

answer

FALSE Safety stock only ensures that a given likelihood of stock outs.

question

The calculation of safety stock requires knowledge of demand and lead time variability.

answer

TRUE Both of these play a role in the calculation of safety stock.

question

The two basic issues in inventory are how much to order and when to order.

answer

TRUE Quantity and timing are the two basic issues in inventory management.

question

Cycle counting can be used in motorcycle inventory control.

answer

TRUE Cycle counting can also be used in automobile inventory control.

question

Using the EOQ model, the higher an item's carrying costs, the more frequently it will be ordered.

answer

TRUE As carrying costs increase, the optimal order quantity decreases.

question

The cycle time represents the time between reorder point and receipt of order.

answer

FALSE The cycle time represents the time between orders.

question

The cost of placing an order is a function of order size.

answer

FALSE The cost of placing an order is typically unrelated to order size.

question

All stock outs must be avoided.

answer

FALSE Most of the time it would be too costly to avoid all stockouts.

question

In the basic EOQ model, annual holding cost is one-half of the total annual cost for all items purchased.

answer

FALSE Annual holding cost equals half the product of the order quantity and the per-unit-per-year holding cost.

question

Quantity discounts are generally given for large number of orders.

answer

FALSE Quantity discounts are given for smaller, but larger, orders.

question

The larger the number of orders placed, the larger the average level of inventory.

answer

FALSE More orders means smaller quantities, which means lower average inventory.

question

A non-linear cost related to order size is the cost of:

answer

receiving; Receiving cost is a non-linear cost associated with order size.

question

In a two-bin inventory system, the amount contained in the second bin is equal to the:

answer

ROP; The second bin equals the amount needed during lead time in addition to any safety stock.

question

When carrying costs are stated as a percentage of unit price, the minimum points on the total cost curves:

answer

Do not line u; Curves aren't symmetrical if holding cost differs across price breaks.

question

Dairy items, fresh fruit and newspapers are items that:

answer

are subject to deterioration and spoilage; Deterioration and spoilage increase holding costs.

question

Which of the following is least likely to be included in order costs?

answer

temporary storage of delivered goods; Storage costs are holding costs.

question

In an A-B-C system, the typical percentage of the number of items in inventory for A items is about:

answer

10; Class A items represent a relatively small portion of items.

question

In the A-B-C classification system, items which account for fifteen percent of the total dollar-volume for a majority of the inventory items would be classified as:

answer

C items; These would be class C items.

question

In the A-B-C classification system, items which account for sixty percent of the total dollar-volume for few inventory items would be classified as:

answer

A items

question

The purpose of "cycle counting" is to:

answer

reduce discrepancies between inventory records and actual; Cycle counting is intended to improve inventory record accuracy.

question

The EOQ model is most relevant for which one of the following?

answer

determining fixed order quantities; The EOQ is a fixed-quantity approach.

question

Which is not a true assumption in the EOQ model?

answer

No more than 3 items are involved; EOQ can be used across multiple items.

question

In a supermarket, a vendor's restocking the shelves every Monday morning is an example of:

answer

fixed order interval; This would be a weekly interval model.

question

A cycle count program will usually require that 'A' items be counted:

answer

more frequently than annually.; Class A items are counted more frequently.

question

A risk avoider would want ______ safety stock.

answer

More; Greater risk aversion is associated with more safety stock.

question

In the basic EOQ model, if annual demand doubles, the effect on the EOQ is:

answer

It increases by about 40 percent.; The EOQ does not increase linearly with demand.

question

In the basic EOQ model, if lead time increases from five to 10 days, the EOQ will:

answer

remain the same; The EOQ is independent of lead time.

question

In the basic EOQ model, an annual demand of 40 units, an ordering cost of $5, and a holding cost of $1 per unit per year will result in an EOQ of:

answer

20; Use the base EOQ formula

question

In the basic EOQ model, if D = 60 per month, S = $12, and H = $10 per unit per month, EOQ is:

answer

12; Use the base EOQ formula.

question

In the basic EOQ model, if annual demand is 50, carrying cost is $2, and ordering cost is $15, EOQ is approximately:

answer

28 ;Use the base EOQ formula.

question

Which of the following is not true for Economic Production Quantity model?

answer

There are no ordering or setup costs.; There are ordering or setup costs in the EPQ model.

question

Given the same demand, setup/ordering costs, and carrying costs, the EOQ calculated using incremental replenishment will be ____________ if instantaneous replenishment was assumed:

answer

greater than the EOQ; The EPQ will be smaller than the EOQ.

question

The introduction of quantity discounts will cause the optimum order quantity to be:

answer

unchanged or greater; Quantity discounts cannot make the optimum quantity be smaller.

question

A fill rate is the percentage of _____ filled by stock on hand.

answer

Demand; The fill rate is the percentage of demand filled directly from on-hand inventory.

question

In the quantity discount model, with carrying cost stated as a percentage of unit purchase price, in order for the EOQ of the lowest curve to be optimum, it must:

answer

be in a feasible range; If not feasible, that quantity will have to be adjusted upward and then total cost calculated.

question

Which one of the following is not generally a determinant of the reorder point?

answer

purchase cost; Purchase cost does not enter into reorder point calculations.

question

If no variations in demand or lead time exist, the ROP will equal:

answer

expected usage during lead time; The ROP will be the demand rate times the lead time.

question

If average demand for an inventory item is 200 units per day, lead time is three days, and safety stock is 100 units, the reorder point is:

answer

700 units; The ROP will be the safety stock added to the product of the demand rate and the lead time.

question

Which one of the following is implied by a "lead time" service level of 95 percent?

answer

The probability is 95 percent that demand during lead time will not exceed the amount on hand at the beginning of lead time. ; A stock only occurs if demand during lead time exceeds the ROP.

question

Which one of the following is implied by an "annual" service level of 95 percent?

answer

None of the above. ; The annual service level is usually greater than the cycle service level, and thus the risk of a stockout during lead time is much smaller than 5 percent.

question

Daily usage is exactly 60 gallons per day. Lead time is normally distributed with a mean of 10 days and a standard deviation of 2 days. What is the standard deviation of demand during lead time?

answer

60 x 2; The standard deviation of demand during lead time is the square root of squared demand times the squared standard deviation of lead time.

question

Lead time is exactly 20 days long. Daily demand is normally distributed with a mean of 10 gallons per day and a standard deviation of 2 gallons. What is the standard deviation of demand during lead time?

answer

2 times the square root of 20 ; The standard deviation of demand during lead time equals the daily standard deviation of demand times the square root of the lead time.

question

All of the following are possible reasons for using the fixed order interval model except:

answer

The required safety stock is lower than with an EOQ/ROP model. ; Safety stock is higher in a fixed order interval model.

question

Which of these products would be most apt to involve the use of a single-period model?

answer

fresh fish; The perishability of fresh fish makes it more appropriate for a single-period model.

question

In a single-period model, if shortage and excess costs are equal, then the optimum service level is:

answer

.50 ; The ratio of shortage cost to shortage plus excess cost is 0.5.

question

In a single-period model, if shortage cost is four times excess cost, then the optimum service level is ___ percent.

answer

80 ; The ratio of shortage cost to shortage plus excess cost is 0.8.

question

In the single-period model, if excess cost is double shortage cost, the approximate stockout risk, assuming an optimum service level, is ___ percent.

answer

67; The ratio of shortage cost to shortage plus excess cost is 0.67.

question

If, in a single-period inventory situation, the probabilities of demand being 1, 2, 3, or 4 units are .3, .3, .2, and .2, respectively. If two units are stocked, what is the probability of selling both of them?

answer

.7 ; Both units will be sold if demand is for 2, 3 or 4 units.

question

The management of supply chain inventories focuses on:

answer

both internal and external inventories;Supply chain inventory involves both internal and external inventories.

question

An operations strategy for inventory management should work towards:

answer

decreasing lot sizes; If lot sizes can be reduced, operations become leaner.

question

Cycle stock inventory is intended to deal with ________.

answer

expected demand; Cycle stock is intended to deal with expected demand, while safety stock is intended to reduce stockouts resulting from demand uncertainty.

question

An operations strategy which recognizes high carrying costs and reduces ordering costs will result in:

answer

greatly decreased order quantities; Processes will be leaned leading to smaller order quantities.

question

The need for safety stocks can be reduced by an operations strategy which:

answer

decreases lead time variability; Reduced lead time variability will reduce the size of safety stocks.

question

If average demand for an item is 20 units per day, safety stock is 50 units, and lead time is four days, the ROP will be:

answer

130; Multiply the demand rate by the lead time and add the safety stock.

question

With an A-B-C system, an item that had a high demand but a low annual dollar volume would probably be classified as:

answer

C; Low dollar volume items tend to be classified as C items.

question

The fixed order interval model would be most likely to be used for this situation:

answer

Grouping orders can save shipping costs.; If ordering costs can be saved by grouping orders, the fixed order interval model is especially attractive.

question

Which item would be least likely to be ordered under a fixed order interval system?

answer

auto parts at an assembly plant; Auto parts at an assembly plant would be unlikely candidates for a fixed order interval system.

question

Which one of these would not be a factor in determining the reorder point?

answer

the EOQ; The ROP is independent of the EOQ.

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