Deck 12: Managing Inventories

Question 1

Backorders:

A) result from lost sales.
B) have little financial impact.
C) may occur as a result of a stockout.
D) force a customer to purchase elsewhere.

Answer 1

C

Question 2

Demand that varies over time is called _____ demand.

A) static
B) dynamic
C) statistical
D) average

Answer 2

B

Question 3

Independent demand:

A) can be calculated.
B) is related to other stock-keeping units (SKUs).
C) is also called finished-goods inventory.
D) needs to be forecasted.

Answer 3

D

Question 4

In ABC inventory analysis, which of the following is TRUE of class C items?

A) Close control of Class C items (more than of class A or class B items) is required.
B) Class C items are critical items that must be monitored with a fixed-period system as they have low unit costs and a high volume.
C) Class C items make up a lower percentage of total dollar value than either class A or class B items.
D) Class C items make up for 10 to 20 percent of inventory items and 60 to 80 percent of the total dollar usage.

Question 5

A _____ is defined as the inability to satisfy the demand for an item.

A) Reorder point
B) Stockout
C) Lost sale
D) Backorder

Question 6

Demand that is stable over time is called _____ demand.

A) static
B) dynamic
C) statistical
D) average

Question 7

Additional inventory that is kept over and above the average amount required to meet demand is called _____ inventory.

A) seasonal
B) work-in-process
C) finished goods
D) safety stock

Question 8

Which of the following statements is TRUE?

A) Inventory is any physical asset held for future use or sale.
B) When using ABC analysis, C items require close control by operations managers as they account for a large dollar value but a relatively small percentage of total items.
C) Dependent demand is directly related to the demand of other stock-keeping units (SKUs) and can be calculated without needing to be forecasted.
D) Stockouts occur in a fixed-quantity system (FQS) whenever the lead-time demand exceeds the replenishment level (M).

Question 9

Demand that incorporates uncertainty is called _____ demand.

A) statistical
B) average
C) stochastic
D) deterministic

Question 10

Costs associated with configuring tools, equipment, and machines within a factory to produce an item are components of _____ costs.

A) ordering
B) inventory-holding
C) shortage
D) unit

Question 11

Brenda opens a pool and spa store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The 28-ounce bottle of Super Algaecide (SA) is a high margin stock keeping unit (SKU), but it stocks out frequently. Ten SA bottles come in each box, and she orders boxes from a vendor 160 miles away. Brenda is busy running the store and seldom has time to review store inventory status and order the right quantity at the right time. She collects the following data with respect to these SA sales.
$\begin{array} { l l } \text { Demand } = 10 \text { boxes per week } & \text { Store operates } 50 \text { weeks } / \text { year } \\\text { Order cost } = \$ 40 / \text { order } & \text { Lead time } = 3 \text { weeks } \\\text { Item cost } = \$ 80 / \text { box } & \text { Std. deviation in weekly demand } = 6 \\\text { Inventory-holding cost } = 15 \% \text { per year } & \text { Service level } = 96 \%\end{array}$

-If the current order quantity for SA is 20 boxes per order, how much money can she save per year by adopting an economic order quantity (EOQ) ordering policy?

A) Less than $100
B) More than $100 but less than or equal to $200
C) More than $300 but less than or equal to $400
D) More than $400

Question 12

Which of the following statements is NOT TRUE?

A) Inventory is any asset held for future use or sale.
B) When using ABC analysis, "C" items comprise of a small dollar value.
C) Stock keeping unit (SKU) is a single item or asset stored at multiple locations.
D) The lead time is the time between placement of an order and its receipt.

Question 13

_____ inventory consists of partially completed products in various stages of completion that are awaiting further processing.

A) Raw materials
B) Work-in-process (WIP)
C) Cycle
D) Safety stock

Question 14

_____ inventory acts as a buffer between workstations in flow shops or departments in job shops to enable the operating process to continue.

A) Raw materials
B) Work-in-process
C) Cycle stock
D) Safety stock

Question 15

Costs associated with backordering products are called _____ costs.

A) holding
B) shortage
C) ordering
D) setup

Question 16

Which of the following is NOT a component of holding cost?

A) Tax
B) Insurance
C) Material handling
D) Order processing

Question 17

In ABC analysis, which of the following items typically comprise 60 to 80 percent of total dollar usage but only 10 to 30 percent of the items?

A) A
B) B
C) C
D) B and C

Question 18

Which of the following is NOT TRUE regarding inventory management?

A) The two fundamental inventory decisions are: where to order and what to order.
B) Inventory management applies to goods and to services.
C) Different types of inventory characteristics require different approaches for control.
D) Stock-keeping units (SKUs) are often aggregated or partitioned into groups with similar characteristics or dollar value.

Question 19

In ABC inventory analysis, which of the following is TRUE of class A items?

A) Class A items need not be closely controlled.
B) Class A items account for 5 to 15 percent of the total dollar value.
C) Class A items account for a relatively small percentage of total items.
D) Class A items have a relatively low volume and low unit costs compared to Class C items.

Question 20

Brenda opens a pool and spa store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The 28-ounce bottle of Super Algaecide (SA) is a high margin stock keeping unit (SKU), but it stocks out frequently. Ten SA bottles come in each box, and she orders boxes from a vendor 160 miles away. Brenda is busy running the store and seldom has time to review store inventory status and order the right quantity at the right time. She collects the following data with respect to these SA sales.
$\begin{array} { l l } \text { Demand } = 10 \text { boxes per week } & \text { Store operates } 50 \text { weeks } / \text { year } \\\text { Order cost } = \$ 40 / \text { order } & \text { Lead time } = 3 \text { weeks } \\\text { Item cost } = \$ 80 / \text { box } & \text { Std. deviation in weekly demand } = 6 \\\text { Inventory-holding cost } = 15 \% \text { per year } & \text { Service level } = 96 \%\end{array}$

-The Economic Order Quantity (EOQ) rounded to the next highest number is:

A) less than 25 boxes.
B) more than 25 but less than or equal to 35 boxes.
C) more than 35 but less than or equal to 45 boxes.
D) more than 55 boxes.

Question 21

Kelly opens an aquarium store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. She collects the following data about the pump's sales.
$\begin{array} { l l } \text { Demand } = 10 \text { units per week } & \text { Store operates } 45 \text { weeks } / \text { year } \\\text { Order cost } = \$ 30 / \text { order } & \text { Lead time } = 3 \text { weeks } \\\text { Item cost } = \$ 80 / \text { pump } & \text { Standard deviation of weekly demand } = 4 \text { units } \\\text { Inventory-holding cost } = 15 \% \text { per year } & \text { Desired service level } = 90 \text { percent }\end{array}$

-The economic order quantity (EOQ) rounded to the next highest number is:

A) less than 25 pumps.
B) more than 25 but less than or equal to 35 pumps.
C) more than 35 but less than or equal to 45 pumps.
D) more than 45 but less than or equal to 55 pumps.

Question 22

Table 1
Peterson Enterprises uses a fixed order quantity inventory control system. The firm operates 50 weeks per year and has the following characteristics for an item:
Demand $= 50,000$ units/year
Ordering cost $= \$ 35 /$ order
Inventory-carrying cost as a percent of item value $= 25 \%$
Item (Unit) value $= \$ 8$
Lead time $= 3$ weeks
Standard deviation in weekly demand $= 125$ units

-The total order and inventory-holding cost is:

A) less than $1,000.
B) more than or equal to $1,000 but less than $1,500.
C) more than or equal to $1,500 but less than $2,000.
D) more than or equal to $2,000.

Question 23

Which of the following is NOT a key assumption underlining the classic economic order quantity (EOQ) model?

A) The entire order quantity arrives in the inventory at one time.
B) There are only two types of relevant costs: order/setup and inventory holding.
C) Demand is assumed to be stochastic.
D) Stockouts are not allowed.

Question 24

Brenda opens a pool and spa store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The 28-ounce bottle of Super Algaecide (SA) is a high margin stock keeping unit (SKU), but it stocks out frequently. Ten SA bottles come in each box, and she orders boxes from a vendor 160 miles away. Brenda is busy running the store and seldom has time to review store inventory status and order the right quantity at the right time. She collects the following data with respect to these SA sales.
$\begin{array} { l l } \text { Demand } = 10 \text { boxes per week } & \text { Store operates } 50 \text { weeks } / \text { year } \\\text { Order cost } = \$ 40 / \text { order } & \text { Lead time } = 3 \text { weeks } \\\text { Item cost } = \$ 80 / \text { box } & \text { Std. deviation in weekly demand } = 6 \\\text { Inventory-holding cost } = 15 \% \text { per year } & \text { Service level } = 96 \%\end{array}$

-The average number of orders per year using the economic order quantity (EOQ) is:

A) less than 6.
B) more than 6 but less than or equal to 8.
C) more than 8 but less than or equal to 10.
D) more than 12.

Question 25

Table 1
Peterson Enterprises uses a fixed order quantity inventory control system. The firm operates 50 weeks per year and has the following characteristics for an item:
Demand $= 50,000$ units/year
Ordering cost $= \$ 35 /$ order
Inventory-carrying cost as a percent of item value $= 25 \%$
Item (Unit) value $= \$ 8$
Lead time $= 3$ weeks
Standard deviation in weekly demand $= 125$ units

-Using the information in Table 1, if Peterson wishes to provide a 97 percent cycle service level, what is the reorder point?

A) Less than or equal to 2,800 units
B) Greater than 2,800 but less than or equal to 3,200 units
C) Greater than 3,200 but less than or equal to 3,600 units
D) Greater than 3,600 units

Question 26

Table 1
Jackson Enterprises uses a fixed order quantity inventory control system. The firm operates 50 weeks per year and has the following characteristics for an item:
Demand $=20,000$ units/year
Ordering cost $=\$ 45 /$ order
Inventory-carrying cost as a percent of item value $=25 \%$
Item (Unit) value $=\$ 20$
Lead time $=5$ weeks
Standard deviation in weekly demand $=125$ units

-Using the information in Table 1, calculate the economic order quantity (EOQ) for this item?

A) Less than or equal to 500 units
B) Greater than 500 units but less than or equal to 1,000 units
C) Greater than 1,000 units but less than or equal to 1,500 units
D) Greater than 1,500 units

Question 27

Brenda opens a pool and spa store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The 28-ounce bottle of Super Algaecide (SA) is a high margin stock keeping unit (SKU), but it stocks out frequently. Ten SA bottles come in each box, and she orders boxes from a vendor 160 miles away. Brenda is busy running the store and seldom has time to review store inventory status and order the right quantity at the right time. She collects the following data with respect to these SA sales.
$\begin{array} { l l } \text { Demand } = 10 \text { boxes per week } & \text { Store operates } 50 \text { weeks } / \text { year } \\\text { Order cost } = \$ 40 / \text { order } & \text { Lead time } = 3 \text { weeks } \\\text { Item cost } = \$ 80 / \text { box } & \text { Std. deviation in weekly demand } = 6 \\\text { Inventory-holding cost } = 15 \% \text { per year } & \text { Service level } = 96 \%\end{array}$

-The reorder point for Super Algaecide (SA) with safety stock is:

A) less than 20 boxes.
B) more than 20 but less than or equal to 30 boxes.
C) more than 30 but less than or equal to 40 boxes.
D) more than 40 but less than or equal to 50 boxes.

Question 28

In a fixed-quantity system (FQS), as the reorder point increases:

A) the safety stock increases.
B) the safety stock decreases.
C) the number of orders increases.
D) the number of orders decreases.

Question 29

Which of the following statements is TRUE?

A) Fixed costs associated with any ordering are relevant.
B) Sunk costs associated with any ordering are irrelevant.
C) Variable costs associated with inventory holding are irrelevant.
D) Variable costs associated with ordering are irrelevant.

Question 30

Table 1
Peterson Enterprises uses a fixed order quantity inventory control system. The firm operates 50 weeks per year and has the following characteristics for an item:
Demand $= 50,000$ units/year
Ordering cost $= \$ 35 /$ order
Inventory-carrying cost as a percent of item value $= 25 \%$
Item (Unit) value $= \$ 8$
Lead time $= 3$ weeks
Standard deviation in weekly demand $= 125$ units

-Using the information in Table 1, calculate the economic order quantity (EOQ) for this item?

A) Less than or equal to 1200 units
B) Greater than 1200 but less than or equal to 1400 units
C) Greater than 1400 but less than or equal to 1600 units
D) Greater than 1600 units

Question 31

In a fixed order quantity (FOQ) system, which of the following is TRUE when interest rates increase and all other costs remain the same?

A) Cycle inventory decreases
B) Order quantity increases
C) Order costs increase
D) Safety stock quantity increases

Question 32

Which of the following statements is TRUE?

A) The level of safety stock maintained decreases when the desired cycle service level increases.
B) The level of safety stock maintained decreases when the standard deviation of demand during lead time increases.
C) In a fixed-period inventory system, the value of Q is kept the same from one cycle to another.
D) In a fixed-order-quantity system, the reorder point is the average demand during the lead time, plus the additional safety stock when demand is uncertain.

Question 33

Kelly opens an aquarium store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. She collects the following data about the pump's sales.
$\begin{array} { l l } \text { Demand } = 10 \text { units per week } & \text { Store operates } 45 \text { weeks } / \text { year } \\\text { Order cost } = \$ 30 / \text { order } & \text { Lead time } = 3 \text { weeks } \\\text { Item cost } = \$ 80 / \text { pump } & \text { Standard deviation of weekly demand } = 4 \text { units } \\\text { Inventory-holding cost } = 15 \% \text { per year } & \text { Desired service level } = 90 \text { percent }\end{array}$

-The reorder point with safety stock rounded to the next highest whole number is:

A) less than 15 pumps.
B) more than 15 but less than or equal to 25 pumps.
C) more than 25 but less than or equal to 40 pumps.
D) more than 40 pumps.

Question 34

Kelly opens an aquarium store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. She collects the following data about the pump's sales.
$\begin{array} { l l } \text { Demand } = 10 \text { units per week } & \text { Store operates } 45 \text { weeks } / \text { year } \\\text { Order cost } = \$ 30 / \text { order } & \text { Lead time } = 3 \text { weeks } \\\text { Item cost } = \$ 80 / \text { pump } & \text { Standard deviation of weekly demand } = 4 \text { units } \\\text { Inventory-holding cost } = 15 \% \text { per year } & \text { Desired service level } = 90 \text { percent }\end{array}$

-If the current order quantity used by Kelly is 20 pumps per order, how much money can she save by adopting an economic order quantity (EOQ) policy?

A) Less than $50
B) More than $50 but less than or equal to $100
C) More than $100 but less than or equal to $150
D) more than $150

Question 35

Kelly opens an aquarium store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. She collects the following data about the pump's sales.
$\begin{array} { l l } \text { Demand } = 10 \text { units per week } & \text { Store operates } 45 \text { weeks } / \text { year } \\\text { Order cost } = \$ 30 / \text { order } & \text { Lead time } = 3 \text { weeks } \\\text { Item cost } = \$ 80 / \text { pump } & \text { Standard deviation of weekly demand } = 4 \text { units } \\\text { Inventory-holding cost } = 15 \% \text { per year } & \text { Desired service level } = 90 \text { percent }\end{array}$

-If Kelly decides to use a fixed-period system (FPS), the fixed-order interval (T) based on store economics is:

A) less than or equal to 5 weeks.
B) more than 5 but less than or equal to 10 weeks.
C) more than 10 but less than or equal to 15 weeks.
D) more than 15 but less than or equal to 20 weeks.

Question 36

Table 1
Jackson Enterprises uses a fixed order quantity inventory control system. The firm operates 50 weeks per year and has the following characteristics for an item:
Demand $=20,000$ units/year
Ordering cost $=\$ 45 /$ order
Inventory-carrying cost as a percent of item value $=25 \%$
Item (Unit) value $=\$ 20$
Lead time $=5$ weeks
Standard deviation in weekly demand $=125$ units

-Using the information in Table 1, if the service level is 96 percent, what is the reorder point?

A) Less than or equal to 2,800 units
B) Greater than 2,800 but less than or equal to 3,200 units
C) Greater than 3,200 but less than or equal to 3,600 units
D) Greater than 3,600 units

Question 37

Inventory position is computed using all the following EXCEPT:

A) on-hand quantity.
B) scheduled receipts.
C) backorders.
D) lead-time demand.

Question 38

Average inventory in the economic order quantity (EOQ) model is defined as:

A) the order quantity divided by the number of inventory cycles per year.
B) the annual usage divided by the number of inventory cycles per year.
C) one-half of the order quantity.
D) one-half of the annual usage.

Question 39

Which of the following statements concerning the economic order quantity (EOQ) model is NOT TRUE when the unit holding cost increases?

A) The economic order quantity will decrease.
B) The number of orders per year will increase.
C) Annual ordering costs will increase.
D) Sunk costs will decrease.

Question 40

Table 1
Jackson Enterprises uses a fixed order quantity inventory control system. The firm operates 50 weeks per year and has the following characteristics for an item:
Demand $=20,000$ units/year
Ordering cost $=\$ 45 /$ order
Inventory-carrying cost as a percent of item value $=25 \%$
Item (Unit) value $=\$ 20$
Lead time $=5$ weeks
Standard deviation in weekly demand $=125$ units

-The total order and inventory-holding cost for the economic order quantity (EOQ) is:

A) less than $1,000.
B) more than or equal to $1,000 but less than $1,500.
C) more than or equal to $1500 but less than $2,500.
D) more than or equal to $2,500.

Question 41

Zainab opens an aquarium store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. She collects the following data with respect to this pump's sales:
$\begin{array} { l l } \text { Demand } = 5 \text { units per week } & \text { Store operates } 50 \text { weeks } / \text { year } \\\text { Order cost } = \$ 40 / \text { order } & \text { Lead time } = 3 \text { weeks } \\\text { Item cost } = \$ 80 / \text { pump } & \\\text { Inventory-holding cost } = 15 \% \text { per year } &\end{array}$

-If the current order quantity used by Zainab is 20 pumps per order, how much money can she save by adopting an economic order quantity (EOQ) policy?

A) Less than $50
B) More than $50 but less than or equal to $75
C) More than $75 but less than or equal to $120
D) More than $120

Question 42

Marketing and operations generally prefer high inventory levels, while finance would prefer small inventories.

Question 43

Safety stock inventory is an additional planned on-hand inventory that acts as a buffer to reduce the risk of a stockout.

Question 44

Graeme manages a candy store in a high traffic shopping mall where he has collected the following information:
Weekly demand for small candy boxes = 90 boxes
Cost to place one purchase order with the box supplier = $19.80
Cost to hold one box for one year in inventory = $2.45
ead time = 2 weeks
Weeks in a year = 52 weeks
The current ordering policy for the candy store is 360 boxes so the average inventory level (i.e., cycle inventory) is:

A) less than or equal to 100 boxes.
B) more than 100 but less than or equal to 150 boxes.
C) more than 150 but less than or equal to 200 boxes.
D) more than 200 but less than or equal to 250 boxes.

Question 45

An airline seat is an example of an asset held for future use or sale.

Question 46

Graeme manages a candy store in a high traffic shopping mall where he has collected the following information:
Weekly demand for small candy boxes = 90 boxes
Cost to place one purchase order with the box supplier = $19.80
Cost to hold one box for one year in inventory = $2.45
ead time = 2 weeks
Weeks in a year = 52 weeks
The optimal replenishment level for the given fixed-period system (FPS) is:

A) less than 300 boxes.
B) more than or equal to 300 but less than 400 boxes.
C) more than or equal to 400 but less than 500 boxes.
D) more than or equal to 500 boxes.

Question 47

Zainab opens an aquarium store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. She collects the following data with respect to this pump's sales:
$\begin{array} { l l } \text { Demand } = 5 \text { units per week } & \text { Store operates } 50 \text { weeks } / \text { year } \\\text { Order cost } = \$ 40 / \text { order } & \text { Lead time } = 3 \text { weeks } \\\text { Item cost } = \$ 80 / \text { pump } & \\\text { Inventory-holding cost } = 15 \% \text { per year } &\end{array}$

-The economic order quantity (EOQ) rounded to the next highest number is:

A) less than 25 pumps.
B) more than 25 but less than or equal to 35 pumps.
C) more than 35 but less than or equal to 45 pumps.
D) more than 45 but less than or equal to 55 pumps.

Question 48

Work-in-process inventory is completed products ready for distribution or sale to customers.

Question 49

Cynthia Baker, manager of a large medical supply house that operates 50 weeks per year and 5 days per week, has decided to implement a fixed-period inventory system for all class A items. One such item has the following characteristics:
$\begin{array} { l } \text { Demand } = 10,000 \text { units } / \text { year } \\\text { Order cost } = \$ 50 / \text { order } \\\text { Holding cost } = \$ 5 / \text { unit } / \text { year }\end{array}$
If Cynthia wishes to minimize the total cost (thereby approximating the economic order quantity (EOQ)), what should be the value of T, the number of workdays between orders (i.e., review period)?

A) Less than or equal to 8 days
B) Greater than 8 but less than or equal to 10 days
C) Greater than 10 but less than or equal to 12 days
D) Greater than 12 but less than or equal to 14 days

Question 50

In the single-period inventory model, the optimal order quantity is solved using:

A) marginal economic analysis.
B) total cost analysis.
C) an ABC analysis.
D) a reorder point analysis.

Question 51

Zainab opens an aquarium store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. She collects the following data with respect to this pump's sales:
$\begin{array} { l l } \text { Demand } = 5 \text { units per week } & \text { Store operates } 50 \text { weeks } / \text { year } \\\text { Order cost } = \$ 40 / \text { order } & \text { Lead time } = 3 \text { weeks } \\\text { Item cost } = \$ 80 / \text { pump } & \\\text { Inventory-holding cost } = 15 \% \text { per year } &\end{array}$

-If Zainab decides to use a fixed-period system (FPS), the fixed-order interval based on store economics is:

A) less than 5 weeks.
B) more than 5 but less than or equal to 10 weeks.
C) more than 10 but less than or equal to 15 weeks.
D) more than 15 but less than or equal to 20 weeks.

Question 52

Graeme manages a candy store in a high traffic shopping mall where he has collected the following information:
Weekly demand for small candy boxes = 90 boxes
Cost to place one purchase order with the box supplier = $19.80
Cost to hold one box for one year in inventory = $2.45
ead time = 2 weeks
Weeks in a year = 52 weeks
The total order and inventory-holding cost is:

A) less than $300.
B) more than or equal to $300 but less than $400.
C) more than or equal to $400 but less than $500.
D) more than or equal to $600.

Question 53

A fixed-period (FPS) inventory system:

A) orders a fixed-period quantity when the inventory position reaches or drops below the reorder point (r).
B) chooses a replenishment level (M) which includes the demand during the review period and lead time, plus any safety stock.
C) maintains a constant order quantity every review period.
D) assumes that the demand for an item is constant and continuous, and that the items are withdrawn at a constant rate.

Question 54

Which is NOT a feature of the periodic review system?

A) The order quantity, Q, is always fixed.
B) The inventory position need not be monitored on a continuous basis.
C) The review period, T, is constant.
D) Placing an order is time-triggered.

Question 55

Two fundamental inventory decisions are: when to order and how much to order. Which of the following statement is TRUE about fixed-quantity (FQS) and fixed-period (FPS) inventory systems?

A) An FPS orders a fixed-period quantity when the inventory position reaches or passes the reorder point (r).
B) An FPS must cover a time period of T + L to cover the risk of a stockout.
C) An FPS places an order for an economic order quantity (EOQ) on a continuous basis.
D) An FQS places an order to replenish the inventory position up to a target level (M) when the inventory position reaches the reorder point (r).

Question 56

Which of the following statements is NOT TRUE regarding the fixed-period system (FPS)?

A) The time between orders is constant, but the order quantity might vary.
B) An order is time-triggered, not inventory-triggered.
C) The optimal replenishment level includes the demand during the review period, plus any desired safety stock.
D) When demand is not certain, the FPS addresses stockouts by adding safety stock to the expected demand during time T + L.

Question 57

Inventory management does not involve supplies and replacement parts.

Question 58

Which of the following is NOT a key input in a single-period inventory model?

A) Probability distribution of demand
B) Probability that demand is less than the optimal order quantity
C) Cost per item of overestimating demand
D) Cost per item of underestimating demand

Question 59

Graeme manages a candy store in a high traffic shopping mall where he has collected the following information:
Weekly demand for small candy boxes = 90 boxes
Cost to place one purchase order with the box supplier = $19.80
Cost to hold one box for one year in inventory = $2.45
ead time = 2 weeks
Weeks in a year = 52 weeks
The economic order quantity (EOQ) is:

A) less than 100 boxes.
B) more than 100 but less than or equal to 150 boxes.
C) more than 150 but less than or equal to 200 boxes.
D) more than 200 boxes.

Question 60

Call center phone lines are examples of inventory in service organizations.

Question 61

Radio-frequency identification (RFID) tags are used to track stock-keeping units in supply chains.

Question 62

When a customer is unwilling to wait for an item that is not in stock and purchases the item elsewhere, a backorder has occurred.

Question 63

Stochastic demand inventory models are easier to analyze and solve than deterministic models.

Question 64

Inventory-holding costs are easily measured by accounting departments.

Question 65

Opportunity cost of capital is an example of ordering cost.

Question 66

Costs associated with maintaining storage facilities such as gas and electricity, taxes, and insurance are associated with fixed ordering costs.

Question 67

Dependent demand, unlike independent demand, needs to be forecasted.

Question 68

A stock-keeping unit is the same no matter at which location the item is found.

Question 69

Setup costs depend on the number of items manufactured.

Question 70

Airline flights to ski areas near Denver, Colorado, probably have different means and variances throughout the year. This is an example of dynamic demand.

Question 71

"C" items are the critical few that must be closely managed in an inventory system.

Question 72

Deterministic demand always remains stable over time and does not fluctuate.

Question 73

Finished-goods inventory consists of completed products that are ready for sale.

Question 74

"A" items typically comprise a high percentage of total dollar usage but a low percentage of unit volume.

Question 75

Larger orders result in higher total holding cost but lower total ordering cost.

Question 76

Many practical inventory situations include backorders and quantity discounts.

Question 77

Inventory position refers to the physical quantity of items on hand in an inventory system.

Question 78

In a fixed quantity inventory system with certain demand, the reorder point is chosen to be the average demand during the lead time.

Question 79

Because the fixed-quantity system orders the same amount each time, time between orders will be constant, even with variable demand.

Question 80

Lead time is the time it takes to prepare an order for shipping to a customer.