Deck 16: Inventory Management

Question 1

The conventional approach to inventory management is to maintain a level of inventory that reflects a compromise between inventory cost and customer service.

Answer 1

True

Question 2

Finished product is an example of a dependent demand item.

Answer 2

False

Question 3

Inventory can take the form of tools and equipment.

Answer 3

True

Question 4

The ABC classification system is a method for classifying inventory based on the percentage of total value and the percentage of total quantity.

Question 5

Carry costs and ordering costs are inversely related.

Question 6

The reorder point is the level of inventory that prompts a new order to be placed in a continuous inventory system.

Question 7

The three basic costs associated with inventory are holding costs,ordering costs and shortage costs.

Question 8

Inventory management is concerned with how much to order and when to order.

Question 9

Hedging involves buying larger amounts of inventory in anticipation of future price increases.

Question 10

Product deterioration,spoilage,breakage,and obsolescence are examples of shortage costs.

Question 11

Seasonal inventory allows a firm to maintain a smooth production flow throughout the year.

Question 12

Continuous inventory systems often incorporate information technology to improve the speed and accuracy of data entry and retrieval.

Question 13

Carrying costs are more difficult to determine than ordering or shortage costs.

Question 14

Class A items in the ABC classification system require less monitoring and control than Class C items.

Question 15

Shortage costs are easier to determine than carrying costs or ordering costs.

Question 16

As the level of inventory increases to provide better customer service,quality-related customer service costs decrease.

Question 17

Dependent demand items consist of component parts or materials used in the production process to produce a final product.

Question 18

Dependent demand items are typically products for use by the final customer.

Question 19

Dependent demand is determined by external market conditions.

Question 20

Buffer inventories provide independence between different stages of the production process.

Question 21

The number of orders can be calculated by dividing the daily demand rate,d,by the order quantity,Q.

Question 22

The economic order quantity (EOQ)model determines the optimal order size that minimizes total annual inventory costs.

Question 23

The economic order quantity occurs when the annual carrying cost is equal to the annual ordering cost.

Question 24

For a given annual demand,total annual ordering cost is independent of order size.

Question 25

The production quantity model,a variation of the basic EOQ model,assumes non-instantaneous replenishment.

Question 26

The order cycle is the time between receipts of orders in an inventory cycle.

Question 27

In ABC analysis,each class of inventory requires different levels of inventory monitoring and control.

Question 28

Continuous inventory systems are primarily intended for lower cost items because they are easier to use requiring fewer resources.

Question 29

With the economic order quantity (EOQ)model,the number of orders increases as the order size decreases.

Question 30

The EOQ model determines the optimal order size that minimizes the sum of carrying cost and shortage costs.

Question 31

When demand is uncertain,a safety stock is often added to the expected demand during lead time to prevent a stockout.

Question 32

The periodic inventory system is often preferred for high quantity,low value items.

Question 33

A quantity discount is a price discount available if a predetermined number of units is ordered.

Question 34

Periodic inventory systems initiate a new order when the level of inventory falls to the reorder point.

Question 35

The quantity discount model evaluates whether using an order size that qualifies for a price discount is always less cost effective than using the economic order quantity.

Question 36

With the economic order quantity (EOQ)model,increasing the order quantity reduces inventory carrying cost.

Question 37

The time between orders is variable and the order quantity is constant in the periodic inventory system.

Question 38

The average inventory can be calculated by dividing the annual demand,D,by 2.

Question 39

Continuous inventory systems are also referred to as a fixed-order-quantity system.

Question 40

The order quantity for a periodic inventory system remains constant.

Question 41

In general,as the order size increases

A)ordering costs decrease and carrying costs increase.
B)ordering costs increase and carrying costs decrease.
C)both ordering and carrying costs increase.
D)both ordering and carrying costs decrease.

Question 42

Which of the following is not an example of inventory carried to satisfy independent demand?

A)spare parts
B)finished product
C)raw materials
D)All the above satisfy independent demand.

Question 43

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate.The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00.If the restaurant orders the economic order quantity then the total annual inventory cost for napkins is

A)$62,500.
B)$5,000.
C)$2,500.
D)$1250.

Question 44

A continuous inventory system is also known as a

A)fixed-time period system.
B)fixed-order quantity system.
C)fixed-lead time system.
D)fixed-amount system.

Question 45

A service level of 95% means there is a 0.95 probability

A)of meeting all demand.
B)of a stockout.
C)that supply will exceed demand.
D)that demand will be met during the lead time.

Question 46

Annual demand for a product is 40,000 units.The product is used at a constant rate over the 365 days the company is open every year.The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00.If the company orders according to the economic order quantity (EOQ)formula then its optimal order size for this product would be

A)2,000 units.
B)4,000 units.
C)20,000 units.
D)40,000 units.

Question 47

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate.The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00.If the restaurant orders the economic order quantity,then the average inventory for napkins is

A)62,500 boxes.
B)31,250 boxes.
C)5,000 boxes.
D)2,500 boxes.

Question 48

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate.The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00.If the restaurant orders the economic order quantity each time an order is placed,then ___ orders are placed during the year.

A)13
B)15
C)20
D)25

Question 49

Which of the following is not considered a form of inventory?

A)items being transported
B)tools and equipment
C)supplies
D)backorders

Question 50

Inventory management includes all the following activities except determining

A)the amount of inventory to keep in stock.
B)customer demand.
C)how much to order.
D)when to order.

Question 51

Receiving,handling,and shipping costs are examples of

A)shortage costs.
B)carrying costs.
C)ordering costs.
D)none of the above.

Question 52

A company may purchase larger amounts of inventory for all the following reasons except

A)to reduce inventory carrying costs.
B)to take advantage of quantity discounts.
C)as a hedge against future price increases.
D)to obtain lower prices purchasing in volume.

Question 53

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate over the 365 days that it is open.The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00.If the restaurant orders the economic order quantity then the time between orders (order cycle)is

A)125 days.
B)75.3 days.
C)32.8 days.
D)29.2 days.

Question 54

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate.If the cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00,then the economic order quantity for napkins is

A)62,500 boxes.
B)10,000 boxes.
C)5,000 boxes.
D)2,500 boxes.

Question 55

Which of the following is not an assumption of the EOQ model?

A)Demand rate is known and constant.
B)Shortages are allowed.
C)Lead time is constant.
D)Order quantity is received all at once.

Question 56

The ___ classification system classifies inventory according to its dollar value to the firm.

A)periodic
B)continuous
C)ABC
D)EOQ

Question 57

Maintaining a desired service level influences the level of safety stock.

Question 58

___ demand items are used in the process of producing a final product.

A)Dependent
B)Independent
C)Seasonal
D)Cyclical

Question 59

A periodic inventory system is also known as a

A)fixed-time period system.
B)fixed-order quantity system.
C)fixed-lead time system.
D)fixed-amount system.

Question 60

Inventory costs ___ when higher levels of inventory are needed to improve customer service.

A)decrease
B)stay the same
C)increase
D)cannot be estimated

Question 61

The economic order quantity is most widely used for determining how much to order in

A)a periodic inventory system.
B)a continuous inventory system.
C)an on-demand inventory system.
D)none of the above.

Question 62

Which of the following is not an assumption of the EOQ model?

A)Demand is known and constant.
B)No shortages are allowed.
C)Lead time is determined by quantity ordered.
D)Order quantity is received all at once.

Question 63

The demand for an electronic component is normally distributed with an average daily demand of 500 units and a standard deviation of 50.The lead time for the component is 9 days.If the company sets a reorder point of 4650 for this component,then its service level is approximately

A)50 percent.
B)84 percent.
C)92 percent.
D)98 percent.

Question 64

A product's usage is normally distributed with a weekly average demand of 2,000 units and a weekly standard deviation of 125.The lead time for the product is 4 weeks.If the company would like to have a service level of 90% for this product,then the reorder point is approximately

A)8320 units.
B)9218 units.
C)10134 units.
D)11244 units.

Question 65

Explain when it is better to use the continuous inventory system and when it is better to use the periodic inventory system.Discuss how the ABC classification system provides guidance in selecting one versus the other.

Question 66

The quantity discount model considers

A)purchase price.
B)carrying cost.
C)ordering cost.
D)all the above.

Question 67

Annual demand for a product is 40,000 units.The product is used at a constant rate over the 365 days the company is open every year.The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00.If the company orders according to the economic order quantity (EOQ)formula,then the time between orders (order cycle time)is

A)18.25 days.
B)24.33 days.
C)36.5 days.
D)73 days.

Question 68

Briefly compare and contrast a continuous inventory system to a periodic inventory system listing the advantages and disadvantages of each.

Question 69

Annual demand for a product is 40,000 units.The product is used at a constant rate over the 365 days the company is open every year.The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00.If the company orders according to the economic order quantity (EOQ)formula,then its total annual inventory cost for this product would be

A)$100,000.
B)$50,000.
C)$5,000.
D)$2,500.

Question 70

Annual demand for a product is 40,000 units.The product is used at a constant rate over the 365 days the company is open every year.The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00.If the company orders according to the economic order quantity (EOQ)formula then its average inventory level for this product would be

A)20,000 units.
B)10,000 units.
C)2,500 units.
D)1,000 units.

Question 71

Explain the relationship between ordering costs and carrying costs in the economic order quantity (EOQ)model.

Question 72

A product's usage is normally distributed with a weekly average demand of 2,000 units and a weekly standard deviation of 125.The product's lead time is 4 weeks.Currently,the reorder point for this product is 8,200.If the company would like to have a service level of 95% for this product then

A)it must decrease its safety stock by approximately 412 units.
B)it must decrease its safety stock by approximately 212 units.
C)it must increase its safety stock by approximately 412 units.
D)it must increase its safety stock by approximately 212 units.

Question 73

The demand for an electronic component is normally distributed with an average daily demand of 500 units and a standard deviation of 50.The lead-time for the component is 9 days.If a service level of 95% is desired,then the company's reorder point for this component is approximately

A)3785 units.
B)4500 units.
C)4627units.
D)4747units.

Question 74

Annual demand for a product is 40,000 units.The product is used at a constant rate over the 365 days the company is open every year.The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00.If the company orders according to the economic order quantity (EOQ)formula then ___ orders are placed annually.

A)5
B)10
C)15
D)20

Question 75

List several types of uncertainty that may contribute to higher inventory levels.

Question 76

The demand for an electronic component is normally distributed with an average daily demand of 500 units and a standard deviation of 50.The lead time for the component is 9 days.If a service level of 95% is desired,then the company's safety stock for this component is approximately

A)150 units.
B)247 units.
C)336 units.
D)740 units.

Question 77

Make a list of the basic steps involved in using the quantity discount model and discuss each.

Question 78

List and discuss the costs used to determine carrying cost,holding cost and shortage cost.