Deck 17: Inventory Control

Question 1

The computation of a firm's inventory position is found by taking the inventory on hand and adding it to the on-order inventory, and then subtracting back-ordered inventory.

Answer 1

True

Question 2

In inventory models, high holding costs tend to favor high inventory levels.

Answer 2

False

Question 3

Fixed-order quantity inventory models are "event triggered."

Answer 3

True

Question 4

Inventory is defined as the stock of any item or resource used in an organization.

Question 5

One of the basic purposes of inventory analysis in manufacturing and stockkeeping services is to determine how large the orders to vendors should be.

Question 6

Fixed-time period inventory models are "time triggered."

Question 7

If the cost to change from producing one product to producing another were zero the lot size would be very small.

Question 8

Shortage costs are precise and easy to measure.

Question 9

In inventory models, high holding costs tend to favor low inventory levels and frequent replenishment.

Question 10

Fixed-order quantity inventory models are "time triggered."

Question 11

The fixed-time period inventory system has a smaller average inventory than the fixed-order quantity system because it must also protect against stockouts during the review period when inventory is checked.

Question 12

Fixed-time period inventory models are "event triggered."

Question 13

Fixed-order quantity inventory systems determine the reorder point, R and the order quantity, Q values.

Question 14

The fixed-order quantity inventory model is more appropriate for important items such as critical repair parts because there is closer monitoring and therefore quicker response to a potential stockout.

Question 15

An inventory system is a set of policies and controls that monitors levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be.

Question 16

The fixed-order quantity inventory model favors less expensive items because average inventory is lower.

Question 17

Dependent demand inventory levels are usually managed by calculations using calculus-driven, cost- minimizing models.

Question 18

One of the basic purposes of inventory analysis in manufacturing and stockkeeping services is to determine the level of quality to specify.

Question 19

The fixed-order quantity inventory model requires more time to maintain because every addition or withdrawal is logged.

Question 20

One of the basic purposes of inventory analysis in manufacturing and stockkeeping services is to specify when items should be ordered.

Question 21

Cycle counting is a physical inventory-taking technique in which inventory is counted on a frequent basis rather than once or twice a year.

Question 22

Safety stock can be computed when using the fixed-order quantity inventory model by multiplying a "z" value representing the number of standard deviations to achieve a service level or probability by the standard deviation of periodic demand.

Question 23

Using the probability approach we assume that the demand over a period of time is normally distributed.

Question 24

Price-break models deal with the fact that the selling price of an item generally increases as the order size increases.

Question 25

In a price break model of lot sizing, to find the lowest-cost order quantity, it is sometimes necessary to calculate the economic order quantity for each possible price and to check to see whether the lowest cost quantity is feasible.

Question 26

The "sawtooth effect," named after turn-around artist Al "chainsaw" Dunlap, is the severe reduction of inventory and service levels that occurs when a firm has gone through a hostile takeover.

Question 27

Fixed-time period inventory models generate order quantities that vary from time period to time period, depending on the usage rate.

Question 28

The key difference between a fixed-order quantity inventory model, where demand is known and one where demand is uncertain is in computing the reorder point.

Question 29

Some inventory situations involve placing orders to cover only one demand period or to cover short-lived items at frequent intervals.

Question 30

When stocked items are sold, the optimal inventory decision using marginal analysis is to stock that quantity where the probable profit from the sale or use of the last unit is equal to or greater than the probable losses if the last unit remains unsold.

Question 31

In a price break model of lot sizing, to find the lowest-cost order quantity, it is sometimes necessary to calculate the economic order quantity for each possible price.

Question 32

The "sawtooth effect," is named after the jagged shape of the graph of inventory levels over time.

Question 33

Fixed-order quantity systems assume a random depletion of inventory, with less than an immediate order when a reorder point is reached.

Question 34

Price-break models deal with the fact that the selling price of an item varies with the order size.

Question 35

Safety stock is not necessary in any fixed-time period system.

Question 36

In the fixed-time period model it is necessary to determine the inventory currently on hand to calculate the size of the order to place with a vendor.

Question 37

Price-break models deal with discrete or step changes in price as order size changes rather than a per-unit change.

Question 38

The standard fixed-time period model assumes that inventory is never counted but determined by EOQ
measures.

Question 39

Safety stock can be defined as the amount of inventory carried in addition to the expected demand.

Question 40

The optimal stocking decision in inventory management, when using marginal analysis, occurs at the point where the benefits derived from carrying the next unit are more than the costs for that unit.

Question 41

Which of the following is usually included as an inventory holding cost?

A)Order placing
B)Breakage
C)Typing up an order
D)Quantity discounts
E)Annualized cost of materials

Question 42

One of the daily, delicate balancing acts that Logistics managers have to perform involves the trade-off between transportation costs and fulfillment speed.

Question 43

Which of the following is one of the categories of manufacturing inventory?

A)Economic Order Inventory
B)Work-in-process
C)Quality units
D)JIT Inventory
E)Re-order point

Question 44

Which of the following is not one of the categories of manufacturing inventory?

A)Raw materials
B)Finished products
C)Component parts
D)Just-in-time
E)Supplies

Question 45

One of the daily, delicate balancing acts that Logistics managers have to perform involves the trade-off between customer satisfaction and cost to serve.

Question 46

Which of the following is not included as an inventory holding cost?

A)Annualized cost of materials
B)Handling
C)Insurance
D)Pilferage
E)Storage facilities

Question 47

When material is ordered from a vendor, which of the following is not a reason for delays in the order arriving on time?

A)Normal variation in shipping time
B)A shortage of material at the vendor's plant causing backlogs
C)An unexpected strike at the vendor's plant
D)A lost order
E)Redundant ordering systems

Question 48

You should visualize inventory as stacks of money sitting on forklifts, on shelves, and in trucks and planes while in transit.

Question 49

In a price break model of lot sizing the lowest cost quantity is always feasible.

Question 50

When developing inventory cost models, which of the following is not included as costs to place an order?

A)Phone calls
B)Taxes
C)Clerical
D)Calculating quantity to order
E)Postage

Question 51

The average cost of inventory in the United States is 20 to 25 percent of its value.

Question 52

Which of the following is not a reason to carry inventory?

A)To provide a safeguard for variation in raw material delivery time
B)To take advantage of economic purchase-order size
C)To maintain independence of operations
D)To meet variation in product demand
E)To keep the stock out of the hands of competitors

Question 53

One of the drivers of the direct-to-store (direct distribution) approach is the decrease in trucking industry regulation.

Question 54

The costs associated with reduced inventory results in lower profits.

Question 55

One of the daily, delicate balancing acts that Logistics managers have to perform involves the trade-off between inventory costs and the cost of stock-outs.

Question 56

Savings from reduced inventory results in increased profit.

Question 57

In making any decision that affects inventory size, which of the following costs do not need to be considered?

A)Holding costs
B)Setup costs
C)Ordering costs
D)Fixed costs
E)Shortage costs

Question 58

Firms keep supplies of inventory for which of the following reasons?

A)To maintain dependence of operations
B)To provide a feeling of security for the workforce
C)To meet variation in product demand
D)To hedge against wage increases
E)In case the supplier changes the design

Question 59

One of the drivers of the direct-to-store (direct distribution) approach is the upstream migration of value- added logistics services.

Question 60

One of the drivers of the direct-to-store (direct distribution) approach is the increase in global sourcing.

Question 61

Assuming no safety stock, what is the re-order point (R) given an average daily demand of 50 units, a lead time of 10 days and 625 units on hand?

A)550
B)500
C)715
D)450
E)475

Question 62

Which of the following is the set of all cost components that make up the fixed-order quantity total annual cost (TC) function?

A)Annual purchasing cost, annual ordering cost, fixed cost
B)Annual holding cost, annual ordering cost, unit cost
C)Annual holding cost, annual ordering cost, annual purchasing cost
D)Annual lead time cost, annual holding cost, annual purchasing cost
E)Annual unit cost, annual set up cost, annual purchasing cost

Question 63

Which of the following is fixed-order quantity inventory model?

A)Economic order quantity model
B)The ABC model
C)Periodic replenishment model
D)Cycle counting model
E)P model

Question 64

Assuming no safety stock, what is the reorder point (R) given an average daily demand of 78 units and a lead time of 3 days?

A)421
B)234
C)78
D)26
E)312

Question 65

Which of the following is not an assumption of the basic fixed-order quantity inventory model?

A)Ordering or setup costs are constant
B)Inventory holding cost is based on average inventory
C)Diminishing returns to scale of holding inventory
D)Lead time is constant
E)Demand for the product is uniform throughout the period

Question 66

Which of the following is a perpetual system for inventory management?

A)Fixed-time period
B)Fixed-order quantity
C)P model
D)First-in-first-out
E)The wheel of inventory

Question 67

If annual demand is 12,000 units, the ordering cost is $6 per order and the holding cost is $2.50 per unit per year, which of the following is the optimal order quantity using the fixed-order quantity model?

A)576
B)240
C)120.4
D)60.56
E)56.03

Question 68

If annual demand is 50,000 units, the ordering cost is $25 per order and the holding cost is $5 per unit per year, which of the following is the optimal order quantity using the fixed-order quantity model?

A)909
B)707
C)634
D)500
E)141

Question 69

Which of the following is fixed-time period inventory model?

A)The EOQ model
B)The least cost method
C)The Q model
D)Periodic system model
E)Just-in-time model

Question 70

Which of the following is the symbol used in the textbook for the cost of placing an order in the fixed-order quantity inventory model?

A)C
B)TC
C)H
D)Q
E)S

Question 71

Which of the following is an assumption of the basic fixed-order quantity inventory model?

A)Lead times are averaged
B)Ordering costs are variable
C)Price per unit of product is constant
D)Back orders are allowed
E)Stock-out costs are high