Deck 5: S Waiting Lines

Question 1

Which one of the following descriptions best defines the cycle- service level as a measure of customer service?

A) The number of stockouts tolerated per year
B) The desired probability of not running out of stock in any one inventory cycle
C) The preferred proportion of days in the year when an item is in stock
D) The preferred proportion of annual demand instantaneously filled from stock

Answer 1

The desired probability of not running out of stock in any one inventory cycle

Question 2

Sark Incorporated is out of stock for a key item, which has a backorder of 200 units. An open order of 750 units is scheduled for arrival on the following Monday. What is the current inventory position at Sark?

A) less than or equal to 0 units
B) greater than 0 but less than or equal to 500 units
C) greater than 500 but less than or equal to 750 units
D) greater than 750 units

Answer 2

greater than 500 but less than or equal to 750 units

Question 3

Which one of the following statements about inventory control systems is best?

A) Visual systems are intended for use with high- value items like jet engines, that don't experience a steady demand.
B) The base- stock system is mostly used for inexpensive items since it maximizes cycle inventory costs.
C) A base- stock system minimizes ordering and setup costs by placing orders more infrequently.
D) A single- bin system is essentially a P system, with the target inventory and current inventory position established visually.

Answer 3

A single- bin system is essentially a P system, with the target inventory and current inventory position established visually.

Question 4

What is generally true about the class A items in ABC analysis? They represent

A) about 30 percent of all items.
B) about 20 percent of all items.
C) about 50 percent of the dollar usage.
D) about 20 percent of the dollar usage.

Question 5

Use the information in Table 5.3. What is the EOQ (economic order quantity) for this air filter?

A) less than or equal to 2,000 units
B) greater than 2,000 units but less than or equal to 3,000 units
C) greater than 3,000 units but less than or equal to 4,000 units
D) greater than 4,000 units

Question 6

The Lemma Company manufactures and sells 10 products. Ways have been found to cut both the setup and inventory holding costs in half. What effect will this have on the economic order quantities of the 10 products?

A) They will be increased by a factor of 1.41.
B) They will not change.
C) They will be reduced by a factor of 2.00.
D) They will be reduced by a factor of 1.41.

Question 7

Which one of the following is NOT a method for tracking inventory and assuring accurate records?

A) cycle counting
B) assign responsibility to specific employees for issuing and receiving materials
C) logic error checks
D) updating the reorder points to minimize safety stock

Question 8

Use the information in Table 5.9. Assume demand during lead time to be normally distributed. For a continuous review system, what should be the reorder point (R)?

A) less than or equal to 870
B) greater than or equal to 870 but less than or equal to 900
C) greater than 900 but less than or equal to 930
D) more than 930

Question 9

Which one of the following statements about anticipation inventory is TRUE?

A) It is a portion of inventory that is used to absorb only the variation in demand.
B) It is a portion of inventory that is used to absorb variation in demand or supply.
C) It is a portion of inventory that is reserved for the best customer.
D) It is a portion of inventory that is used to absorb only the variation in supply.

Question 10

Use the information in Table 5.10. How much safety stock should be held to achieve a 95 percent cycle service level?

A) less than or equal to 270 units
B) greater than 270 but less than or equal to 285 units
C) greater than 285 but less than or equal to 300 units
D) greater than 300 units

Question 11

Which of the following statements regarding a periodic review (P) system for inventory control is FALSE?

A) Stockout protection is required for a longer time interval than continuous review systems for inventory control.
B) The target inventory level is set based on the average demand during the protection period plus safety stock.
C) The quantity ordered each time is a fixed lot size Q equal to the reorder point (R).
D) An item's inventory position is reviewed periodically rather than continuously.

Question 12

Use the information in Table 5.10. Suppose the firm decides on a safety stock (B) of 245 units. It is time to review the item, and the current inventory position is 700 units. How many units should be ordered? (Hint: Before answering this question, you must first compute T, the target inventory level.)

A) less than or equal to 900 units
B) greater than 900 but less than or equal to 950 units
C) greater than 950 but less than or equal to 1000 units
D) greater than 1000 units

Question 13

Which one of the following statements concerning the economic order quantity (EOQ) is TRUE?

A) The EOQ formula assumes that there are only three relevant costs: holding, transportation, and setup.
B) An increase in demand will increase the EOQ value.
C) The EOQ is the order quantity that minimizes annual inventory holding costs.
D) The time between orders

Question 14

Use the information from Table 5.11. Design a continuous review system (Q system) for this item, making Q equal to the EOQ. Assume that the demand during lead time is normally distributed. What are the desired values for Q and R?

A) Q is between 121 and 125, and R is between 80 and 84.
B) Q is between 138 and 142, and R is between 39 and 42.
C) Q is between 121 and 125, and R is between 53 and 57.
D) Q is between 138 and 142, and R is between 34 and 38.

Question 15

One of the secondary levers for reducing pipeline inventory is to

A) increase capacity cushions.
B) select more responsive suppliers.
C) offer seasonal pricing plans.
D) accept only large orders.

Question 16

Use the information in Table 5.8. What is the EOQ for this item?

A) greater than 0 but less than or equal to 1500 units
B) greater than 1500 but less than or equal to 3000 units
C) greater than 3000 but less than or equal to 4500 units
D) greater than 4500 units

Question 17

Use the information in Table 5.4. What is the desired safety stock level if the company has a policy of maintaining a 90 percent cycle- service level?

A) less than or equal to 50 units
B) greater than 50 units but less than or equal to 100 units
C) greater than 100 units but less than or equal to 150 units
D) greater than 150 units

Question 18

Use the information in Table 5.8. A firm uses the periodic review system to control the item depicted above. It reviews the item's status every three weeks (P = 3). At the most recent review an inventory clerk just checked the inventory of this item and found 1500 units. There were no scheduled receipts and no back orders. How many units should be ordered? (Hint: You must calculate T before answering this question.)

A) 0 units
B) greater than 0 but less than or equal to 3750 units
C) greater than 3750 but less than or equal to 4000 units
D) greater than 4000 units

Question 19

Use the information in Table 5.6. If Peterson wishes to provide a 90 percent cycle- service level, what is the reorder point?

A) less than or equal to 2700 units
B) greater than 2700 but less than or equal to 3100 units
C) greater than 3100 but less than or equal to 3500 units
D) greater than 3500 units

Question 20

Which one of the following reasons creates a pressure for reducing inventories?

A) on- time delivery requests from customers
B) need for better labor or equipment utilization
C) high interest or opportunity cost
D) need for reduction in total payments to suppliers

Question 21

Which one of the following statements represents an advantage of the P system over the Q system?

A) Less safety stock is carried to achieve the same service level.
B) Orders can be more easily combined to the same supplier.
C) A P system is more suitable for quantity discounts and capacity limitations.
D) The replenishment intervals can be more easily individualized for items.

Question 22

Use the information in Table 5.6. What is the EOQ for this item?

A) less than or equal to 1100 units
B) greater than 1100 but less than or equal to 1200 units
C) greater than 1200 but less than or equal to 1300 units
D) more than 1300 units

Question 23

Which one of the following statements is best?

A) When no safety stock is maintained, stockouts will occur during approximately 50 percent of the cycles.
B) The level of safety stock maintained decreases when the desired cycle- service level increases.
C) The level of safety stock maintained is greater if mean absolute deviation (MAD) is used rather than standard deviation in estimating forecast errors.
D) The level of safety stock maintained decreases when the standard deviation of demand during lead time increases.

Question 24

Use the information in Table 5.3. What is the reorder point R if the cycle- service level is brought down to 80 percent?

A) less than or equal to 2800 units
B) greater than 2800 units but less than or equal to 2900 units
C) greater than 2900 units but less than or equal to 3000 units
D) greater than 3000

Question 25

Which one of the following statements is best?

A) A P system lends itself more to quantity discounts than does a Q system.
B) In a periodic review system, the value of Q is kept the same from one cycle to another.
C) A P system requires more administrative control and computer support than does a Q system.
D) A P system requires more safety stock than a Q system.

Question 26

One of the secondary levers for reducing safety stock inventory is to reduce

A) capacity cushions.
B) supply uncertainties.
C) setup cost.
D) delivery size.

Question 27

Which one of the following statements regarding the economic order quantity (EOQ) is TRUE?

A) When the interest rate drops, the inventory holding cost decreases and the EOQ decreases.
B) If an order quantity is larger than the EOQ, the annual holding cost for cycle inventory exceeds the annual ordering cost.
C) The EOQ model combines several different item orders to the same supplier.
D) The EOQ model assumes a variable demand pattern.

Question 28

Use the information in Table 5.9. Design a periodic review system with P = 4 weeks. Assume demand during lead time plus review period to be normally distributed. What target inventory will provide the desired cycle- service level of 85 percent?

A) less than or equal to 1400 units
B) greater than or equal to 1400 but less than or equal to 1425 units
C) greater than 1425 but less than or equal to 1450 units
D) greater than 1450 units

Question 29

Use the information in Table 5.2. If Crittenden uses the EOQ model, how frequently must she place orders for this item?

A) every week
B) every 2 weeks
C) every 3 weeks
D) every 4 weeks

Question 30

Use the information from Table 5.11. Design a periodic review system (P system), with P = 5 weeks. What target inventory T will provide the desired 90 percent cycle- service level?

A) between 188 and 192 units
B) between 53 and 57 units
C) between 172 and 176 units
D) between 202 and 206 units

Question 31

Which one of the following statements concerning the economic order quantity (EOQ) model is TRUE?

A) An increase in holding cost will increase the EOQ value.
B) A decrease in holding cost will increase the EOQ value.
C) A decrease in demand will increase the EOQ value.
D) None of the above are true.

Question 32

Use the information in Table 5.8. If the firm changed to a continuous review system, what would be the reorder point?

A) 0 units
B) greater than 0 but less than or equal to 1000 units
C) greater than 1000 but less than or equal to 2000 units
D) greater than 2000 units

Question 33

An item experiences an annual demand of 7200 units. It costs $8 to hold an item in inventory for one year and $16 to place an order. If the EOQ model is used, what is the time between orders? Assume that there are 52 business weeks in a year.

A) less than 1 week
B) greater than 1 week but less than or equal to 2 weeks
C) greater than 2 weeks but less than or equal to 3 weeks
D) greater than 3 weeks

Question 34

Pipeline inventory is a type of inventory that is usually maintained by

A) a trucking company making emergency shipments.
B) any manufacturer moving materials from point to point.
C) gasoline suppliers only.
D) electrical utilities only.

Question 35

The net quantity of an item available to satisfy future demand is referred to as

A) reorder point (R).
B) inventory position (IP).
C) scheduled receipts (SR).
D) item fill rate (IFR).

Question 36

Use the information in Table 5.2. Due to new ordering procedures initiated by Crittenden, the ordering cost is dropping to $4/order. At the same time, the weekly demand increases to 64 units per week due to an increase in business. What effect do these changes have on the EOQ quantity for this item?

A) The EOQ quantity increases by 20 percent.
B) The EOQ quantity remains unchanged.
C) The EOQ quantity decreases by 20 percent.
D) Sufficient information is not available for answering this question.

Question 37

Demand for an item is 1000 units per week, with a standard deviation in weekly demand of 60 units. The lead time is 2 weeks. The company wants to maintain an 88 percent cycle- service level. Assume demand during lead time to be normally distributed. For a continuous review system, what should be the reorder point? A normal table is attached at the end of this exam.

A) less than or equal to 2075
B) greater than 2075 but less than or equal to 2085
C) greater than 2085 but less than or equal to 2095
D) greater than 2095

Question 38

Use the information in Table 5.4. What is the economic order quantity (EOQ) for this item?

A) less than or equal to 175 units
B) greater than 175 units but less than or equal to 200 units
C) greater than 200 units but less than or equal to 225 units
D) greater than 225 units

Question 39

Use the information in Table 5.9. Design a continuous review system making Q equal to EOQ. What will be the economic order quantity (EOQ)?

A) less than or equal to 560
B) greater than or equal to 560 but less than or equal to 575
C) greater than 575 but less than or equal to 590
D) more than 590

Question 40

The goal of ABC analysis is to

A) estimate dollar value per pound.
B) determine the profitability of items.
C) to identify the A items for better inventory control.
D) estimate average volume per dollar value.

Question 41

Your firm uses a continuous review system (Q system), where the inventory position is updated after every transaction. The firm operates 52 weeks per year. One of the items has the following characteristics: If Q is made equal to the EOQ, what are the desired values for Q and R?

A) Q is between 65 and 69, and R is between 362 and 366.
B) Q is between 439 and 443, and R is between 559 and 563.
C) Q is between 439 and 443, and R is between 678 and 682.
D) Q is between 65 and 69, and R is between 398 and 402.

Question 42

Which statement regarding special items is FALSE?

A) just enough of the item is ordered or processed to cover the latest customer request
B) less likely than a standard item to have finished goods inventory
C) more likely than a standard item to have finished goods inventory
D) an item that is made to order or, if purchased, bought to order

Question 43

Use the information in Table 5.7. The firm decided to change to the periodic review system to control the item's inventory. For the most recent review, an inventory clerk checked the inventory of this item and found 500 units. There were no scheduled receipts at the time. How many units should be ordered? (HINT: Use the EOQ model to derive P, the time between reviews.)

A) 0 units
B) greater than 0 but less than or equal to 300 units
C) greater than 300 but less than or equal to 600 units
D) above 600 units

Question 44

Which one of the following descriptions of a base- stock system is best?

A) It can be seen as a way to minimize cycle inventory.
B) An item's inventory is stored at two different locations or "bins."
C) It is particularly attractive when review and ordering cost are both significant.
D) Examples include gasoline storage tanks at a service station.

Question 45

The desired probability of not running out of stock in any one order cycle is referred to as the

A) cycle- service level.
B) order fill rate.
C) safety stock.
D) reorder point.

Question 46

Which one of the following statements concerning a continuous review system is best?

A) An item's on- hand inventory increases by Q units as soon as an order is placed.
B) Under a continuous review system, an item's inventory position corresponds to the on- hand inventory unless there are backorders or one or more scheduled receipts.
C) The inventory position (IP) of an item measures the item's ability to satisfy future demand, relying only on the on- hand inventory.
D) An item's inventory position under a continuous review system increases by Q units as soon as an order is received.

Question 47

Use the information in Table 5.3. What is the reorder point R to satisfy a 95 percent cycle- service level?

A) less than or equal to 2800 units
B) greater than 2800 units but less than or equal to 2900 units
C) greater than 2900 units but less than or equal to 3000 units
D) greater than 3000 units

Question 48

Even though the economic order quantity (EOQ) is optimal only when five assumptions are satisfied, it serves as a reasonable first approximation even when these assumptions do not quite apply. Which one of the following is NOT an assumption of the EOQ?

A) Quantity discounts can be taken advantage of for large lot sizes.
B) The amount of an order received is exactly equal to what was ordered, without any "short shipments" from a supplier or scrap losses in the shop.
C) Decisions for one item can be made independently of decisions made for other items.
D) There is no uncertainty in lead time.

Question 49

Wood County Hospital consumed 400 boxes of bandages per week last year. The price of bandages was $80 per box, and the hospital operates 52 weeks per year. The cost of processing an order was $64, and the cost of holding one box throughout a full year was 20 percent of the value of the material.
Last year the hospital ordered bandages, on average, once every two weeks, each time ordering 800 boxes. What extra cost did the hospital incur that could have been avoided if the EOQ concept had been applied?

A) less than $650
B) more than $650 and less than $1050
C) more than $1050 and less than $1450
D) more than $1450

Question 50

Jan Tuttle is the inventory manager of an art supply store. She uses a periodic review system for all oil paints. The number of periods between orders (P) for red #69 is 15 workdays. (The store operates 50 weeks/year, 5 workdays/week.) Additional information concerning red #69 follows. Demand = 30 units/workday
Standard deviation of daily demand = 4 units/workday Lead time = 7 workdays
Desired cycle- service level = 85%
A normal table is appended to this exam. What is the target inventory level T for red #69?

A) less than or equal to 550
B) greater than 550 but less than or equal to 600
C) greater than 600 but less than or equal to 650
D) greater than 650

Question 51

For a company that manufactures most of its products as standards, more inventory should be placed

A) closer to the customer.
B) equally distributed between the plants and warehouses.
C) within the plant as work- in- process.
D) close to suppliers.

Question 52

Sensitivity analysis on the economic order quantity (EOQ) formula can help the operations manager answer several questions on how to manage inventories. Which one of the following questions is NOT answered by EOQ sensitivity analysis?

A) What should happen to lot sizes if supply and lead- time uncertainty increase?
B) How critical are errors in estimating demand (D), inventory holding cost (H), and setup cost (S)?
C) What should happen to cycle inventory if the demand rate increases?
D) What should happen to lot sizes if interest rates drop?

Question 53

Use the information in Table 5.5. What safety stock level provides a 95 percent cycle- service level?

A) less than or equal to 150 units
B) greater than 150 but less than or equal to 200 units
C) greater than 200 but less than or equal to 250 units
D) greater than 250 units

Question 54

A neighborhood sportswear store sells a pair of Nike sneakers for $40. Due to the recent fitness craze, these shoes are in high demand: 50 pairs of shoes are sold per week. The ordering cost is $20/order, and the annual holding cost is 20 percent of selling price. If the store operates 52 weeks a year, what can you say about the current lot size of 235?

A) too large
B) too small
C) just right
D) cannot tell from the information given

Question 55

Cynthia Korinsky, manager of a large medical supply house that operates 50 weeks per year and 5 days per week, has decided to implement a periodic review system for all class A items. One such item has the following characteristics: If Korinsky wishes to minimize total cost (thereby approximating the EOQ), what should be P, the number of workdays between orders?

A) less than or equal to 10 days
B) greater than 10 days but less than or equal to 12 days
C) greater than 12 days but less than or equal to 14 days
D) greater than 14 days

Question 56

Which one of the following statements represents an advantage of a Q system over the P system?

A) A perpetual inventory system is not mandatory.
B) Fixed replenishment intervals are possible, which can be, administratively, quite convenient.
C) Orders for multiple items from the same supplier can be combined more easily.
D) The Q system is more suited for quantity discounts and physical limitations.

Question 57

The secondary levers for decoupling inventory emphasize

A) better coordination and adjusting the output rate of individual operations.
B) all aspects of uncertainty found in the demand, supply, delivery, and operations.
C) finding more responsive suppliers and carriers for shipments between stocking locations.
D) level customer demand by offering seasonal pricing plans.

Question 58

The percentage of demand for an item that is met from on- hand inventory, relative to the total demand for that item is referred to as the

A) reorder rate.
B) safety stock ratio.
C) item fill rate.
D) cycle service ratio.

Question 59

An inventory system answers two important questions: when to order and how much to order. Which of the following statements correctly explains how a Q system (continuous review system) or a P system (periodic review system) answers these questions?

A) Under a P system, an order is placed to replenish the inventory position up to the target level T every P time period.
B) Under a Q system, a fixed quantity is ordered every P time period.
C) Under a P system, a fixed quantity Q is ordered when the inventory position reaches the reorder point R.
D) Under a Q system, an order is placed to replenish the inventory position up to the target level T when the inventory position reaches the reorder point R.

Question 60

Use the information in Table 5.7. If a firm uses the continuous review system to control the inventory, what would be the reorder point?

A) 0 units
B) greater than 0, but less than or equal to 300 units
C) greater than 300 but less than or equal to 600 units
D) greater than 600 units

Question 61

______ is the cost of preparing a purchase order for a supplier or a production order for the shop.

Question 62

______ demand items are items for which demand is influenced by market conditions and is not related to the inventory decisions for any other item held in stock.

Question 63

Use the information in Table 5.1. Jacobs has recently learned of the economic order quantity in his business management class. If Home and Hearth implemented the EOQ, which of the following statements is TRUE?

A) The annual order cost would increase.
B) The annual holding cost would increase.
C) The economic order quantity would be greater than 125 units.
D) The annual order cost and holding cost would increase.

Question 64

Which one of the following statements about inventory control systems is TRUE?

A) An optional replenishment system is particularly attractive when both review and ordering costs are significant.
B) Overstocking is quite common for those items that are managed by using the base- stock system.
C) Visual systems are difficult to administer because records on current inventory position have to be kept for every item.
D) A two- bin inventory system is essentially a P system because the inventory is reviewed only on a periodic basis.

Question 65

Use the information in Table 5.5. What is the economic order quantity for this item?

A) less than 400 units
B) greater than 400 but less than or equal to 450 units
C) greater than 450 but less than or equal to 500 units
D) greater than 500 units

Question 66

What are the secondary levers for safety stock inventory?

Question 67

Elimination of products with ______ and ______ are two ways that poorly managed inventory creates environmental waste.

Question 68

The Franklin County Hospital is currently using a continuous review system to control its inventory. One of the items in inventory is an elastic band. The average demand for this item is 200 boxes per week, and the standard deviation in weekly demand is 50 boxes. If the lead time is 3 weeks and the hospital wants a 99 percent cycle- service level, what is the reorder point for this item? A normal table is appended to this exam.

A) less than or equal to 650 boxes
B) greater than 650 boxes but less than or equal to 750 boxes
C) greater than 750 boxes but less than or equal to 850 boxes
D) greater than 850 boxes

Question 69

______ inventory is the surplus inventory that a company holds to protect against uncertainties in demand, lead time, and supply.

Question 70

______ inventory is the portion of total inventory that varies directly with lot size.

Question 71

______ analysis is the process of dividing items into three classes according to their dollar usage so that managers can focus on items that have the higher dollar value.

Question 72

What is a base- stock system?

Question 73

Use the information in Table 5.1 The current order quantity is 125 units per order. What is the total annual ordering cost and holding cost for this order size?

A) less than or equal to $750
B) greater than $750 but less than or equal to $1000
C) greater than $1000 but less than or equal to $1250
D) greater than $1250

Question 74

Which of the following statements regarding a continuous review (Q) system for inventory control is FALSE?

A) On- hand inventory, scheduled receipts and backorders are used to calculate the inventory position.
B) A fixed quantity of inventory is ordered each time the inventory position reaches a predetermined minimum level.
C) The reorder point is the fixed quantity Q of the item that is ordered each time inventory is replenished.
D) The remaining inventory of an item is tracked every time a withdrawal is made.

Question 75

A(n) ______ is a system that allows employees to place orders when inventory visibly reaches a certain marker.

Question 76

The primary lever for reducing ______ inventory is to reduce predictable variation. Secondary levers emphasize better coordination and adjusting the output rate of individual operations.

Question 77

On- hand inventory of an item is only 10 units, and the reorder point R is 135. There are no backorders, and an open order of 110 units is scheduled to arrive next week. Which one of the following statements is TRUE?

A) A new order should be issued now.
B) There is no need to order at the present time.
C) The current inventory position for this item is 125 units.
D) The current inventory position for this item is 110 units.

Question 78

One of the secondary levers for reducing anticipation inventory is to

A) accept only large orders.
B) add products with alternating demand cycles.
C) keep nonperishable product.
D) reduce holding cost.

Question 79

Use the information in Table 5.4. What is the reorder point if the company finally decides to have a 95 percent cycle- service level?

A) less than or equal to 300 units
B) greater than 300 but less than or equal to 325 units
C) greater than 325 but less than or equal to 350 units
D) greater than 350 units

Question 80

For an item under continuous review, the on- hand inventory is only 20 units and the reorder point R is 100 units. There are no backorders, but there is one open order for 90 units. Which one of the following statements is TRUE?

A) An order should be placed now for 20 units.
B) An order should be placed now for 10 units.
C) The current inventory position is 100 units.
D) There is no need to order at the present time.