Deck 16: Performance Evaluation and Compensation

Question 1

The cost of inventory management is expressed in the following equation:

A) Total Cost = Ordering Costs + Warehousing Costs
B) Total Cost = Ordering Costs + Carrying Costs
C) Total Cost = Warehousing Costs + Carrying Costs
D) Total Cost = Warehousing Costs + Financing Costs

Answer 1

B

Question 2

The economic order quantity is the order quantity (or re-order quantity) that will average the combined ordering costs and carrying costs.

Answer 2

False

Question 3

The costs of ordering inventory and the cost of holding inventory increase and decrease consistent with one another.

Answer 3

False

Question 4

LAMA Creations creates sweaters using the wool of the Llama. The wool used in the manufacturing process is ordered by the bundle. LAMA requires 1,200 bundles of Llama wool per year and places orders of 100 bundles at a time. The cost of ordering is $80.00 per order and the carrying cost per bundle is $3.50. What are LAMA Creations' ordering costs?

A) $350.00
B) $480.00
C) $960.00
D) $1,060.00

Question 5

When the EOQ model is a good fit for inventory usage and demand, it does provide a minimum cost re-order quantity.

Question 6

Using the economic quantity approach to ordering, variations in demand or usage rates will lead to inventory shortfalls or holding excess inventory.

Question 7

To minimize inventory management costs, a manager would place large, infrequent orders.

Question 8

Managers need to know that parts will be available when needed by production and that products will be available when customers are ready to purchase.

Question 9

The cost of ordering is expressed as "Ordering Costs = A/Q x K" where K is:

A) carrying costs of the order
B) lead time required to place the order
C) difference between the number of orders and the quantity of each order
D) cost of placing an order

Question 10

The carrying costs of holding inventory is expressed as "Carrying Costs = Q/2 x H" where H is:

A) cost of financing one unit of inventory
B) holding costs of the entire quantity of inventory
C) cost of carrying one unit in inventory
D) half of the cost of carrying one unit of inventory

Question 11

An additional assumption of the EOQ model is that demand for inventory or the usage rate of raw materials inventory fluctuates.

Question 12

LAMA Creations creates sweaters using the wool of the Llama. The wool used in the manufacturing process is ordered by the bundle. LAMA requires 1,200 bundles of Llama wool per year and places orders of 100 bundles at a time. The cost of ordering is $80.00 per order and the carrying cost per bundle is $3.50. What are LAMA Creations' carrying costs?

A) $175.00
B) $350.00
C) $ 87.50
D) $225.00

Question 13

As discounts on inventory purchases are frequent in most industries, the standard economic order quantity and re-order point calculations incorporate quantity discounts.

Question 14

Safety stock is an extra quantity of goods above what is known to be needed to meet sales or production.

Question 15

LAMA Creations creates sweaters using the wool of the Llama. The wool used in the manufacturing process is ordered by the bundle. LAMA requires 1,200 bundles of Llama wool per year and places orders of 100 bundles at a time. The cost of ordering is $80.00 per order and the carrying cost per bundle is $3.50. What are LAMA Creations' total costs of managing inventory?

A) $960.00
B) $1,135.00
C) $1,225.00
D) $175.00

Question 16

To determine the impact of quantity discounts on the economic order quantity, the total cost equation is calculated at the economic order quantity amount and then at each of the quantity discount points.

Question 17

When the economic order quantity results in not taking quantity discounts, the foregone discount is an opportunity cost and needs to be considered in the decision-making process.

Question 18

For most managers, to manage inventory availability for customers an order at the economic order quantity is ordered when the inventory level is zero.

Question 19

The re-order point tells managers when to place an order or start production.

Question 20

Ordering costs decline as the order quantity increases while carrying costs increase as the order quantity increases.

Question 21

The economic order quantity is the minimum point on the total cost curve. This is the order quantity (or re-order quantity) that will minimize:

A) ordering costs
B) carrying costs
C) combined ordering costs and carrying costs.
D) warehousing costs

Question 22

The economic order quantity may be used to determine all of the following except:

A) quantity of products to order
B) the quantity of raw materials to order
C) length of a production run
D) impact of quantity discounts on ordering

Question 23

Economic Order Quantity (EOQ) is calculated as:

A)
B)
C)
D) QUOTE

Question 24

Safety stock is calculated as the difference between the maximum daily usage and the:

A) average daily rate of usage
B) average daily rate of usage multiplied by the number of days lead time
C) number of days of lead time
D) average number of days of lead time multiplied by the rate of usage

Question 25

As order quantity increases quantity discounts often become:

A) non-existent
B) scarce
C) available
D) limited

Question 26

Titan Company, a distributor of high quality pens, carries a safety stock of pens. If the maximum daily usage is 70, the average daily rate of usage is 50 pens per day and the number of lead days of 5 required by the supplier. Titan Company does not carry any safety stock. What is the re-order point for ordering pens?

A) 250 pens
B) 350 pens
C) 100 pens
D) 50 pens

Question 27

In establishing a re-order point, managers must consider all the factors below except:

A) safety stock
B) lead time
C) usage
D) warehouse space

Question 28

A supplier of Titan pens has released a new volume discount program offering a $2.00 discount per pen if orders are placed at 400 pens. What is the opportunity cost of order at an economic order quantity of 300 pens when annual demand is 4,500?

A) $600.00
B) $9,000.00
C) $800.00
D) $4,500.00

Question 29

An assumption of economic order quantity is that demand is steady. A decrease in demand or usage rates will lead to:

A) inventory shortfalls
B) excess inventory
C) efficient level of inventory
D) change in the kind of inventory held

Question 30

Titan Company, a distributor of high quality pens, carries a safety stock of pens. If the maximum daily usage is 70, the average daily rate of usage is 50 pens per day and the number of lead days of 5 required by the supplier. What is the safety stock of pens?

A) 350 pens
B) 250 pens
C) 100 pens
D) 50 pens

Question 31

Safety stock is:

A) extra quantity of goods above what is known to be produced by the supplier
B) extra quantity of goods below what is known to be needed to meet sales or production.
C) extra quantity of goods above what is known to be the economic order quantity.
D) extra quantity of goods above what is known to be needed to meet sales or production.

Question 32

Titan Company, a distributor of high quality pens, carries a safety stock of pens. If the maximum daily usage is 70, the average daily rate of usage is 50 pens per day and the number of lead days of 5 required by the supplier. What is the re-order point for ordering pens?

A) 250 pens
B) 350 pens
C) 100 pens
D) 50 pens

Question 33

LAMA Creations creates sweaters using the wool of the Llama. The wool used in the manufacturing process is ordered by the bundle. LAMA requires 1,200 bundles of Llama wool per year and places orders of 100 bundles at a time. The cost of ordering is $80.00 per order and the carrying cost per bundle is $3.50. LAMA Creations' cost may change if the order quantity is increased from 100 bundles to 200 bundles at a time. What is the cost difference between the carrying costs with orders of 100 bundles as compared to orders of 200 bundles?

A) $350.00
B) $225.00
C) $175.00
D) $0.00

Question 34

LAMA Creations creates sweaters using the wool of the Llama. The wool used in the manufacturing process is ordered by the bundle. LAMA requires 1,200 bundles of Llama wool per year and places orders of 100 bundles at a time. The cost of ordering is $80.00 per order and the carrying cost per bundle is $3.50. LAMA Creations' cost may change if the order quantity is increased from 100 bundles to 200 bundles at a time. What is the cost difference between the ordering costs with orders of 100 bundles as compared to orders of 200 bundles?

A) $520.00
B) $0.00
C) $960.00
D) $480.00

Question 35

Companies prefer to avoid inventory shortfalls to avoid all of the following except:

A) customer dissatisfaction
B) additional cost of special ordering for a customer
C) lower customer retention
D) shorten customer wait times

Question 36

LAMA Creations creates sweaters using the wool of the Llama. The wool used in the manufacturing process is ordered by the bundle. LAMA requires 1,200 bundles of Llama wool per year and places orders of 100 bundles at a time. The cost of ordering is $80.00 per order and the carrying cost per bundle is $3.50. LAMA Creations' ordering cost will change to $90.00 per order if the order quantity is increased from 100 bundles to 200 bundles. What order quantity should be placed in this case?

A) 200 bundles
B) 0 bundles
C) 235 bundles
D) 249 bundles

Question 37

An assumption of economic order quantity is that demand is steady. An increase in demand or usage rates will lead to:

A) inventory shortfalls
B) excess inventory
C) efficient level of inventory
D) change in the kind of inventory held

Question 38

LAMA Creations creates sweaters using the wool of the Llama. The wool used in the manufacturing process is ordered by the bundle. LAMA requires 1,200 bundles of Llama wool per year and places orders of 100 bundles at a time. The cost of ordering is $80.00 per order and the carrying cost per bundle is $3.50. What is the economic order quantity for Lama Creations.

A) 235 bundles
B) 117 bundles
C) 470 bundles
D) 200 bundles

Question 39

LAMA Creations creates sweaters using the wool of the Llama. The wool used in the manufacturing process is ordered by the bundle. LAMA requires 1,200 bundles of Llama wool per year and places orders of 100 bundles at a time. The cost of ordering is $80.00 per order and the carrying cost per bundle is $3.50. LAMA Creations can take advantage of a quantity discounts of $3.00 per bundle if they order in lots of 500 bundles or more. What is the opportunity cost of ordering at EOQ level.

A) $3,600.00
B) $1,500.00
C) $1,035.00
D) $500.00