Deck 7: Inventory Management

Question 1

Dependent demand must be forecasted to be accurate.

Answer 1

False

Question 2

The four categories of inventory are raw materials, intermediate assemblies, work-in-progress and finished goods.

Answer 2

False

Question 3

Radio Frequency Identification (RFID) is beginning to replace bar code inventory tracking, however a weakness is that it requires a direct line of sight for RFID tags to be read.

Answer 3

False

Question 4

MRO supplies are a type of work-in-progress.

Question 5

The ABC inventory matrix combines two ABC analyses-one is based on current inventory valuation and the other is based on annual inventory dollar usage..

Question 6

The (s, S) continuous review policy is to order the same quantity, Q, when physical inventory reaches the reorder point.

Question 7

Steering wheels purchased by Ford are an example of dependent demand.

Question 8

MRO supplies are a type of indirect costs.

Question 9

Pareto Analysis means that 20 percent of the items get about 80 percent of the safety stock.

Question 10

One of the assumptions of the economic order quantity model (EOQ) is that purchase price must remain constant.

Question 11

In the economic manufacturing quantity model (EMQ), the annual consumption rate must be less than the annual production rate.

Question 12

The statistical reorder point is calculated as the average demand during the delivery lead time plus the desired safety stock.

Question 13

The economic order quantity model (EOQ) is the optimal independent demand order quantity that minimizes total annual inventory costs.

Question 14

When demand and lead time are constant, the reorder point (ROP) is less than the demand during lead time.

Question 15

The EOQ equation is derived by setting the annual purchase cost equal to the annual holding cost.

Question 16

The optimal order quantity for the quantity discount model is always at one of the price breakpoints.

Question 17

When both the demand and lead time of a product are variable, firms must keep a higher safety stock level compared to variations in just demand, to offer the same service level.

Question 18

The inventory turnover ratio shows how efficiently a firm is using its inventory to generate revenue.

Question 19

Cycle counting means to physically count inventory on a periodic basis.

Question 20

The ABC inventory control prioritizes dependent demand inventory items into three groups, A, B, and C.A items receive the smallest amount of safety stock, while C items typically have the most safety stock.

Question 21

Which of the following would refer to the 80/20 rule when applied to the ABC inventory control system?

A) 80 percent of the items account for 20 percent of the groups.
B) 20 percent of the items account for 80 percent of the tasks.
C) 80 percent of the unit cost accounts for 20 percent of the items.
D) 80 percent of the total annual $ usage is accounted for, by 20 percent of the items.
E) None of these.

Question 22

If at the end of the year, the cost of revenue = $2,500, total revenue = $12,000 and inventory value = $2,000, the inventory turnover ratio would be:

A) 0.208
B) 0.375
C) 2.667
D) 0.800
E) 1.250

Question 23

Which of the following is a disadvantage of carrying too much inventory?

A) it creates an unnecessary waste of scarce resources.
B) it leads to higher annual inventory ordering costs.
C) it leads to lower average finished goods inventories.
D) it increases the need to purchase items.
E) it reduces the need to conduct cycle counts.

Question 24

Independent demand is the:

A) Internal demand for all end-item parts and materials.
B) Demand for a firm's end products.
C) Forecasted demand for purchased items.
D) Absolute demand for all items.

Question 25

Classify the following inventory items as either A, B, or C items using the ABC inventory control system:

A) item 1 (C), item 2 (A), item 3 (C), item 4 (B), item 5 (C)
B) item 1 (B), item 2 (A), item 3 (A), item 4 (C), item 5 (C)
C) item 1 (C), item 2 (B), item 3 (C), item 4 (A), item 5 (C)
D) item 1 (A), item 2 (B), item 3 (C), item 4 (A), item 5 (B)
E) item 1 (B), item 2 (C), item 3 (B), item 4 (C), item 5 (A)

Question 26

The EOQ model with quantity discounts attempts to determine:

A) the lowest purchasing price.
B) whether to use a fixed-quantity or fixed-period order policy.
C) how many units should be ordered.
D) the shortest lead time to use.
E) the lowest amount of inventory necessary to satisfy a certain service level.

Question 27

The cost of a product is $5, and the carrying cost rate is 20%; the cost of processing an order is $45 and the annual demand is 1000.What is the economic order quantity (EOQ)?

A) 5
B) 20
C) 25
D) 200
E) 300

Question 28

Which of the following is TRUE regarding the EOQ figure below?

A) Curve J represents the annual ordering cost, and curve L represents the annual holding cost.
B) A lot size of G has an annual total cost of about C.
C) At lot size H both holding costs and ordering costs exceed the annual total cost.
D) The EOQ is at lot size G, and curve K is the annual holding cost curve.

Question 29

Which of the following is NOT an assumption of the economic order quantity (EOQ) model?

A) Demand is known, constant, and independent.
B) Lead time is known and constant.
C) Quantity discounts are not possible.
D) Production and use occur simultaneously.
E) The only variable costs are setup cost and holding cost.

Question 30

If an item is ordered using its economic order quantity, the annual carrying cost should be:

A) slightly less than the annual ordering cost.
B) equal to the annual ordering cost.
C) twice the annual purchase price.
D) the square root of the annual ordering cost.
E) none of the above.

Question 31

Lubricants for production equipment which are not parts of the final products are called:

A) Raw materials
B) Work-in-process
C) Maintenance, repair and operating supplies
D) Finished goods
E) Cycle stock

Question 32

In the ABC Inventory Matrix shown, inventory in area Y suggests:

A) under-stocked A and B items.
B) under-stocked B and C items.
C) overstocked A and B items.
D) over-stocked B and C items.
E) inventory that matches sales.

Question 33

What inventory factor may be omitted from the basic EOQ derivation because it is a constant?

A) Annual order-processing cost
B) Annual purchase cost of goods
C) Annual capital cost
D) Annual setup costs
E) Annual total costs

Question 34

Which of the following describes a global RFID challenge?

A) Foreign firms will not use global RFID since the field communication standards tend to vary from country to country.
B) Globally, the RFID industry does not have its own UHF spectrum allocation.
C) RFID tags are passive in undeveloped countries.
D) RFID can track outbound shipments only.
E) All of the above.

Question 35

Which one of the following is NOT a reason for firms to carry inventory?

A) To meet variations in product demand
B) To increase production change/setup costs
C) To allow for production scheduling flexibility
D) To take advantage of quantity discounts
E) To maintain independence of operations

Question 36

If your company had an annual purchase cost of items equal to $2,000,000, an annual holding cost of $150,000 and an annual ordering cost of $50,000 this scenario would reveal that:

A) Your order size was lower than the EOQ
B) Your order lot size was equal to the EOQ
C) Your order lot size was higher than the EOQ
D) Nothing because there is insufficient information to discern where the EOQ would be.

Question 37

The primary purpose of the basic economic order quantity (EOQ) model is to:

A) Calculate the reorder point, so that replenishments take place at the proper time
B) Minimize the sum of purchase cost and holding cost
C) Maximize the customer service level
D) Calculate the optimum safety stock level
E) None of the above

Question 38

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

A) The EOQ model combines several different item orders to the same supplier.
B) If an order quantity is larger than the EOQ, then the annual holding cost will exceed the annual ordering cost.
C) The EOQ model assumes a variable demand pattern.
D) When the holding cost rate drops, both the annual holding cost and the EOQ decrease.
E) The EOQ is frequently used to determine the optimum shipping quantity.

Question 39

Use the information below to calculate the number of orders per year when using the EOQ:
Choose the closest answer.

A) 49
B) 81
C) 123
D) 202

Question 40

Which of the following would be considered a dependent demand item?

A) Bicycle tires used to assemble a bicycle
B) Televisions
C) Furniture
D) Retail customers

Question 41

Which of the following is true under the Periodic Review System?

A) a lower level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system
B) a higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system
C) it is more expensive to administer compared to the Continuous Review System
D) the only uncertainty is the magnitude of demand during the delivery lead time
E) there are no discrepancies between physical inventory and the stock record

Question 42

The College Bookstore sells a unique calculator to college students.The demand for this calculator is constant at 20 units per day.The lead time for this calculator is variable at an average of 9 days with a standard deviation of 2 days.Compute the statistical reorder point that results in a 95 percent in-stock probability.Choose the closest answer.

A) 26 units
B) 46 units
C) 182 units
D) 226 units
E) 246 units

Question 43

Describe the ABC inventory matrix, and how is it used to manage inventory.

Question 44

Briefly describe the differences between dependent and independent demand.Provide examples of dependent and independent demand items for each of the following industries: automotive, personal computer, bicycle

Question 45

List five of the assumptions of the EOQ model.

Question 46

What is Radio Frequency Identification (RFID)? Provide four examples or scenarios of how RFID can be used to aid in supply chain management.

Question 47

When demand and delivery lead time are known and constant, daily demand = 8, purchase lead time = 5 days, and the purchase price = $20/unit, then the reorder point is:

A) 2
B) 13
C) 32.
D) 40.
E) 56.

Question 48

Name and briefly explain the four basic types of inventory.

Question 49

The manager at Robert's Cigars wants to determine the lowest cost order policy given the following purchase discounts offered: cigar costs are $4 each for orders less than 500; $3.50 each for orders of 500 - 1000; and $3.25 each for orders greater than 1000.The order cost = $75, annual demand forecast = 5500 cigars, inventory carrying cost = 30% per year.

Question 50

When demand and delivery lead time are known and constant, the reorder point is the ____.

A) demand during the delivery lead time
B) safety stock
C) demand during lead time + safety stock
D) economic order quantity
E) average inventory

Question 51

Use the graph below to answer the questions that follow.

a.Identify the Annual Holding Cost curve.Provide a brief description of what the Annual Holding Cost curve represents.
b.Identify the Annual Ordering Cost curve.Provide a brief description of what the Annual Ordering Cost curve represents.
c.Identify the Annual Total Cost Curve.Provide a brief description of what the Annual Total Cost curve represents.
d.Identify the Economic Order Quantity.Provide a brief description of what the Economic Order Quantity represents.

Question 52

The College Bookstore sells a unique calculator to college students.The demand for this calculator has a normal distribution with an average daily demand of 20 units and a standard deviation of 4 units per day.The lead time for this calculator is 9 days.Compute the statistical reorder point that results in a 95 percent in-stock probability.Choose the closest answer.

A) 20 units
B) 80 units
C) 180 units
D) 200 units
E) 420 units