Deck 12: Inventory Management

Question 1

One of the underlying assumptions of the EOQ model is that:

A) Replenishment is non-instantaneous
B) There is a point where stockholding costs are equal to ordering costs
C) Demand is unstable and unpredictable
D) A doubling of demand requires a doubling of the order quantity
E) The purchase price per unit varies with the quantity ordered

Answer 1

There is a point where stockholding costs are equal to ordering costs

Question 2

Cycle inventory is required as:

A) Material cannot be transported instantaneously between the point of supply and the point of demand
B) Compensation for the uncertainties inherent in supply and demand
C) One or more stages in the operation cannot supply all the items it produces simultaneously
D) Compensation for differences in the timing of supply and demand

Answer 2

One or more stages in the operation cannot supply all the items it produces simultaneously

Question 3

The economic order quantity (EOQ) formula requires the calculation of holding costs and ordering costs. Determine whether the following costs are items that should be included in holding costs,
Ordering costs or should not be included at all. The cost of warehousing the material should be
Included in:

A) Holding cost
B) Ordering cost
C) Should not be included

Answer 3

Holding cost

Question 4

The EOQ formula has been criticised in a number of areas. Which of the following is not an area of common criticism?

A) The assumptions included in the models.
B) The real costs of stock in operations.
C) Small errors in estimating will result in a significant deviation.
D) The use of the models as prescriptive devices.

Question 5

The Economic Order Quantity (EOQ):

A) Is used to calculate how much safety stock should be carried
B) Will depend on how many related parts are required in the same period
C) Determines the lowest order quantity by balancing the cost of ordering against the cost of holding stock
D) Should be calculated once a year
E) Is a formula that calculates a realistic purchase price for an item

Question 6

Buffer inventory is required as:

A) One or more stages in the operation cannot supply all the items it produces simultaneously
B) Material cannot be transported instantaneously between the point of supply and the point of demand
C) Compensation for differences in the timing of supply and demand
D) Compensation for the uncertainties inherent in supply and demand

Question 7

Which of the following is NOT seen as an advantage of inventory?

A) It reduces working capital.
B) It provides insurance against unexpected demand.
C) It prevents hold-ups in major projects.
D) It smoothes supply and demand.

Question 8

The economic order quantity (EOQ) formula requires the calculation of holding costs and ordering costs. Determine whether the following costs are items that should be included in holding costs,
Ordering costs or should not be included at all. The cost of failing to see the full extent of problems
Within an operation should be included in:

A) Holding cost
B) Ordering cost
C) Should not be included

Question 9

Periodic review means:

A) Ordering inventory to supplier call-offs on an as required basis
B) Ordering inventory at a fixed and regular time interval
C) Ordering inventory in consultation with suppliers relative to their available capacity
D) Ordering inventory when it falls below the designated safety stock level
E) Ordering inventory at a predetermined re-order level

Question 10

Cycle inventory is required as:

A) One or more stages in the operation cannot supply all the items it produces simultaneously
B) Compensation for the uncertainties inherent in supply and demand
C) Compensation for differences in the timing of supply and demand
D) Material cannot be transported instantaneously between the point of supply and the point of demand

Question 11

The cost associated with warehousing is known as:

A) Production inefficiency costs
B) Price discount costs
C) Obsolescence costs
D) Cost of placing an order
E) Working capital costs
F) Storage costs
G) Stock out costs

Question 12

Buffer inventory is required as:

A) Compensation for the uncertainties inherent in supply and demand
B) Compensation for differences in the timing of supply and demand
C) One or more stages in the operation cannot supply all the items it produces simultaneously
D) Material cannot be transported instantaneously between the point of supply and the point of demand

Question 13

The economic order quantity (EOQ) formula requires the calculation of holding costs and ordering costs. Determine whether the following costs are items that should be included in holding costs,
Ordering costs or should not be included at all. The cost associated with a 'stock out' should be
Included in:

A) Holding cost
B) Ordering cost
C) Should not be included

Question 14

Which would be the most appropriate method of controlling stock in a retail shop?

A) Periodic Review
B) Just-in-Time
C) Order Point
D) Two-Bin System
E) Materials Requirements Planning

Question 15

Which would be the most appropriate method of controlling stock in a hotel bar?

A) Periodic Review
B) Order Point
C) Just-in-Time
D) Materials Requirements Planning
E) Two-Bin System

Question 16

The costs of inventory outweigh the benefits of holding stock.

Question 17

The cost of offering reductions for large purchases is:

A) Production inefficiency costs
B) Storage costs
C) Stock out costs
D) Obsolescence costs
E) Working capital costs
F) Cost of placing an order
G) Price discount costs

Question 18

Holding inventory is NOT risky because:

A) It provides no security for uncertain demand
B) Inventory ties up considerable amounts of working capital
C) Items held in stock can deteriorate
D) Inventory can become obsolete

Question 19

The cost of being prevented from seeing the full extent of the problems within an operation is known as:

A) Cost of placing an order
B) Stock out costs
C) Production inefficiency costs
D) Working capital costs
E) Price discount costs
F) Storage costs
G) Obsolescence costs

Question 20

Under the ABC system of inventory priorities a Class A item is:

A) The 20% of high-value items that account for around 20% of the total stock value
B) The 20% of high-value items that account for around 80% of the total stock value
C) The 80% of high-value items that account for around 20% of the total stock value
D) The 80% of high-value items that account for around 80% of the total stock value

Question 21

Which of the following costs will NOT decrease as order size is increased?

A) Price discount costs
B) Working capital costs
C) Cost of placing the order
D) Stock-out costs

Question 22

In operations, inventory or stock is defined as the stored accumulation of material resources in a
transformation system.

Question 23

At a strategic level, the essential role of inventory is to support:

A) Range, speed, flexibility and dependability
B) Quality, dependability, flexibility, cost and speed
C) Cost and speed
D) Flexibility, dependability and quality

Question 24

Which of the following is NOT considered a disadvantage of holding inventory?

A) They may be hazardous to store.
B) They can be duplicated at several different locations.
C) They make it hard to cope with unexpected demand.
D) They may become obsolete as alternatives become available.

Question 25

Which of the following costs does NOT generally increase as order size is increased?

A) Stock-out costs
B) Storage costs
C) Production inefficiency costs
D) Working capital costs

Question 26

In managing an inventory system, which of the following is NOT a major type of decision for the operation's manager to make?

A) How to control the system
B) The relationship with the supplier
C) How much to order
D) When to order

Question 27

A baker making three types of bread, each of which is equally popular with his customers, is likely to use which form of inventory?

A) Buffer inventory
B) Anticipation inventory
C) De-coupling inventory
D) Cycle inventory

Question 28

The purpose of buffer inventory is to compensate for unexpected fluctuations in supply and
demand.

Question 29

The EOQ approach accurately reflects the costs of holding stock.

Question 30

Cycle inventory can be used to compensate for the uncertainties in the process of the supply of
goods into the store, perhaps because of the unreliability of certain suppliers or transport firms.

Question 31

Which of the following is NOT an example of inventory in a hotel?

A) Drinks
B) Food items
C) Cleaning materials
D) Staff

Question 32

When customers are being processed, inventory is normally referred to as:

A) Customer stocks
B) Queues
C) People inventory
D) Customer lines

Question 33

The assumption of steady demand is true for a wide range of operations inventory problems.

Question 34

Cleaning materials would be a far more important item of inventory for an industrial cleaning
company compared with a television plant.

Question 35

The point at which stock will fall to zero minus lead-time is called:

A) Replenishment indicator
B) Re-order point
C) Inventory lag
D) Re-order level

Question 36

Consignment stock has no cost to the customers.

Question 37

Which if the following is NOT seen as an advantage of the EOQ and EBQ models?

A) The models give an indication of the batch size for each order.
B) The cost of stock is accurately incorporated in the models.
C) Small errors will not significantly affect the total cost of near optimum order quantity.
D) The models give a useful indication of how often to order.

Question 38

Which of the following is NOT an example of inventory for a precious metals refiner?

A) Material waiting to be processed
B) Partly-processed material
C) Lorries
D) Refined metal

Question 39

Which of the following is NOT an example of inventory held at Britvic's National Distribution Centre?

A) Fork lift trucks
B) Pallets
C) Drinks
D) Packaging materials

Question 40

Which of the following inventories plays an important role in enhancing its quality?

A) Timber
B) Concrete products
C) Scotch whisky
D) Blood in the health industry