Deck 13: Inventory Management

Question 1

To provide satisfactory levels of customer service while keeping inventory costs within reasonable bounds, two fundamental decisions must be made about inventory: the timing and size of orders.

Answer 1

True

Question 2

In the A-B-C approach, C items typically represent about 15 percent of the number of items, but 60 percent of the dollar usage.

Answer 2

False

Question 3

The overall objective of inventory management is to achieve satisfactory levels of customer service while keeping inventory costs reasonable.

Answer 3

True

Question 4

Interest, insurance, and opportunity costs are all associated with holding costs.

Question 5

Carrying cost is a function of order size; the larger the order, the higher the inventory carrying cost.

Question 6

The average inventory level and the number of orders per year are inversely related: As one increases, the other decreases.

Question 7

In the EOQ formula, holding costs under 10% are expressed as percentages, above 10% are expressed as annual unit costs.

Question 8

DVD recorders would be an example of independent demand items.

Question 9

The two main concerns of inventory control relate to the costs and the level of customer service.

Question 10

Reorder point models are primarily used for dependent demand items.

Question 11

A retail store that carries twice the inventory as its competitor will provide twice the customer service level.

Question 12

One important use of inventories in manufacturing is to decouple operations through the use of work in process inventories.

Question 13

The EOQ should be regarded as an approximate quantity rather than an exact quantity.Thus, rounding the calculated value is acceptable.

Question 14

The objective of inventory management is to minimize the cost of holding inventory.

Question 15

The average inventory level is inversely related to order size.

Question 16

Decoupling operations applies to the railroad industry.

Question 17

The A-B-C approach involves classifying inventory items by unit cost, with expensive items classified as 'A' items and low cost items classified as 'C' items.

Question 18

EOQ inventory models are basically concerned with the timing of orders.

Question 19

An inventory buffer adds value and lowers cost in all supply chains.

Question 20

An example of inventory holding cost is the cost of moving goods to temporary storage after receipt from a supplier.

Question 21

Profit margins tend to be inversely related to inventory turns.

Question 22

Understocking an inventory item is a sure sign of inadequate inventory control.

Question 23

When to order can be calculated by the ROP and expressed as a quantity.

Question 24

The fixed-order interval model requires a continuous monitoring of inventory levels.

Question 25

The total cost curve is relatively flat near the EOQ.

Question 26

In the quantity discount model, if holding costs are given as a percentage of unit price, a graph of the total cost curves will have the same EOQ for each curve.

Question 27

Variability in demand and/or lead time can be compensated for by safety stock.

Question 28

ROP models assume that demand during lead time is composed of a series of dependent daily demands.

Question 29

Safety stock is held because we anticipate future demand.

Question 30

Discrete stocking levels are used when an organization doesn't want visibility of inventory levels.

Question 31

ROP models indicate to managers the time between orders.

Question 32

The rate of demand is an important factor in determining the ROP.

Question 33

The fixed-order interval model requires a larger amount of safety stock than the ROP model for the same risk of a stockout.

Question 34

In the quantity discount model, the optimum quantity will always be found on the lowest total cost curve.

Question 35

Annual ordering cost is inversely related to order size.

Question 36

Because price isn't a factor in the EOQ formula, quantity discounts won't affect EOQ calculations.

Question 37

In the fixed-order interval model, the order size is the same for each order.

Question 38

The single-period model can be very helpful in determining when to order.

Question 39

Solving quality problems can lead to lower inventory levels.

Question 40

The inventory value of the supply chain exceeds the inventory value of the organization's work in process inventory.

Question 41

In the basic EOQ model, annual holding cost is one-half of the total annual cost for all items purchased.

Question 42

The larger the number of orders placed, the larger the average level of inventory.

Question 43

The cost of placing an order is a function of order size.

Question 44

The calculation of safety stock requires knowledge of demand and lead time variability.

Question 45

Using the EOQ model, the higher an item's carrying costs, the more frequently it will be ordered.

Question 46

In the single-period model, the service level is the probability that demand will not exceed the stocking level in any period.

Question 47

Which of the following is not one of the assumptions of the basic EOQ model?

A)Annual demand requirements are known and constant.
B)Lead time does not vary.
C)Each order is received in a single delivery.
D)Quantity discounts are available.
E)All of the above are necessary assumptions.

Question 48

The cycle time represents the time between reorder point and receipt of order.

Question 49

Monitoring inventory turns over time can be used as a measure of performance.

Question 50

When the item is offered for resale, shortage costs in the single-period model can include a charge for loss of customer goodwill.

Question 51

Safety stock eliminates all stock outs.

Question 52

A quantity discount will lower the reorder point.

Question 53

A single-period model would be used mainly by organizations going out of business.

Question 54

The single-period model can be very helpful in determining how much to order.

Question 55

Quantity discounts are generally given for large number of orders.

Question 56

It is critical that the exact quantity calculated in the EOQ model be ordered.

Question 57

All stock outs must be avoided.

Question 58

Cycle counting can be used in motorcycle inventory control.

Question 59

The basic EOQ model ignores the purchasing cost.

Question 60

The two basic issues in inventory are how much to order and when to order.

Question 61

In the A-B-C classification system, items which account for sixty percent of the total dollar-volume for few inventory items would be classified as:

A)A items
B)B items
C)C items
D)A items plus B items
E)B items plus C items

Question 62

The EOQ model is most relevant for which one of the following?

A)ordering items with dependent demand
B)determination of safety stock
C)ordering perishable items
D)determining fixed interval order quantities
E)determining fixed order quantities

Question 63

Which of the following is least likely to be included in order costs?

A)processing vendor invoices for payment
B)moving delivered goods to temporary storage
C)inspecting incoming goods for quantity
D)taking an inventory to determine how much is needed
E)temporary storage of delivered goods

Question 64

In the basic EOQ model, if D = 60 per month, S = $12, and H = $10 per unit per month, EOQ is:

A)10
B)12
C)24
D)72
E)144

Question 65

In a supermarket, a vendor's restocking the shelves every Monday morning is an example of:

A)safety stock replenishment
B)economic order quantities
C)reorder points
D)fixed order interval
E)blanket ordering

Question 66

A risk avoider would want ______ safety stock.

A)Less
B)More
C)The same
D)Zero
E)50%

Question 67

The purpose of "cycle counting" is to:

A)count all the items in inventory
B)count bicycles and motorcycles in inventory
C)reduce discrepancies between inventory records and actual
D)reduce theft
E)count 10% of the items each month

Question 68

When carrying costs are stated as a percentage of unit price, the minimum points on the total cost curves:

A)Line up
B)Equal zero
C)Do not line up
D)Cannot be calculated
E)Depend on the percentage assigned

Question 69

In a two-bin inventory system, the amount contained in the second bin is equal to the:

A)ROP
B)EOQ
C)amount in the first bin
D)optimum stocking level
E)safety stock

Question 70

A non-linear cost related to order size is the cost of:

A)interest
B)insurance
C)taxes
D)receiving
E)space

Question 71

Which is not a true assumption in the EOQ model?

A)Production rate is constant
B)Lead time doesn't vary
C)No more than 3 items are involved
D)Usage rate is constant
E)No quantity discounts

Question 72

In the basic EOQ model, if annual demand is 50, carrying cost is $2, and ordering cost is $15, EOQ is approximately:

A)11
B)20
C)24
D)28
E)375

Question 73

In the basic EOQ model, if annual demand doubles, the effect on the EOQ is:

A)It doubles.
B)It is four times its previous amount.
C)It is half its previous amount.
D)It is about 70 percent of its previous amount.
E)It increases by about 40 percent.

Question 74

Dairy items, fresh fruit and newspapers are items that:

A)do not require safety stocks
B)cannot be ordered in large quantities
C)are subject to deterioration and spoilage
D)require that prices be lowered every two days
E)have minimal holding costs

Question 75

In the basic EOQ model, an annual demand of 40 units, an ordering cost of $5, and a holding cost of $1 per unit per year will result in an EOQ of:

A)20
B)square root of 200
C)200
D)400
E)none of these

Question 76

Which of the following interactions with vendors would potentially lead to inventory reductions?

A)reduce lead times
B)increase safety stock
C)less frequent purchases
D)larger batch quantities
E)longer order intervals

Question 77

In the basic EOQ model, if lead time increases from five to 10 days, the EOQ will:

A)double
B)increase, but not double
C)decrease by a factor of two
D)remain the same
E)none of the above

Question 78

In the A-B-C classification system, items which account for fifteen percent of the total dollar-volume for a majority of the inventory items would be classified as:

A)A items
B)B items
C)C items
D)A items plus B items
E)B items plus C items

Question 79

A cycle count program will usually require that 'A' items be counted:

A)daily.
B)once a week.
C)monthly.
D)quarterly.
E)more frequently than annually.

Question 80

In an A-B-C system, the typical percentage of the number of items in inventory for A items is about:

A)10
B)30
C)50
D)70
E)90