Deck 12: Forecasting

Question 1

Carrying costs are more difficult to determine than ordering or shortage costs.

Answer 1

False

Question 2

Buffer inventories provide independence between different stages of the production process.

Answer 2

True

Question 3

12. Dependent demand items are typically products for use by the final customer.

Answer 3

False

Question 4

Inventory management is concerned with how much to order and when to order.

Question 5

Seasonal inventory allows a firm to maintain a smooth production flow throughout the year.

Question 6

The ability to effectively satisfy internal or external demand in a timely, efficient manner is referred to as the level of customer service.

Question 7

Continuous inventory systems are primarily intended for lower cost items because they are easier to use, and require fewer resources.

Question 8

Inventory can take the form of tools and equipment.

Question 9

Continuous inventory systems are also referred to as a fixed-order-quantity system.

Question 10

Product deterioration, spoilage, breakage, and obsolescence are examples of shortage costs.

Question 11

Shortage costs are easier to determine than carrying costs or ordering costs.

Question 12

The objective of inventory management is to keep enough inventory on-hand to satisfy customer demand without regard to cost effectiveness.

Question 13

Dependent demand items consist of component parts or materials used in the production process to produce a final product.

Question 14

Carry costs and ordering costs are inversely related.

Question 15

Hedging involves buying larger amounts of inventory in anticipation of future price increases.

Question 16

The three basic costs associated with inventory are holding costs, ordering costs and shortage costs.

Question 17

Dependent demand is determined by external market conditions.

Question 18

As the level of inventory increases to provide better customer service, quality-related customer service costs decrease.

Question 19

Finished product is an example of a dependent demand item.

Question 20

The conventional approach to inventory management is to maintain a level of inventory that reflects a compromise between inventory cost and customer service.

Question 21

The quantity discount model evaluates whether using an order size that qualifies for a price discount is always less cost effective than using the economic order quantity.

Question 22

Class A items in the ABC classification system require less monitoring and control than Class C items.

Question 23

The ABC classification system is a method for classifying inventory based on the percentage of total value and the percentage of total quantity.

Question 24

The average inventory can be calculated by dividing the annual demand, D, by 2.

Question 25

The reorder point is the level of inventory that promts a new order to be placed in a continuous inventory system.

Question 26

The order quantity for a periodic inventory system remains constant.

Question 27

With the economic order quantity (EOQ) model, increasing the order quantity reduces inventory carrying cost.

Question 28

The economic order quantity occurs when the annual carrying cost is equal to the annual ordering cost.

Question 29

In ABC analysis, each class of inventory requires different levels of inventory monitoring and control.

Question 30

The EOQ model determines the optimal order size that minimizes the sum of carrying costs and shortage costs.

Question 31

The periodic inventory system is often preferred for high quantity, low value items.

Question 32

For a given annual demand, total annual ordering cost is independent of order size.

Question 33

The order cycle is the time between receipts of orders in an inventory cycle.

Question 34

The production quantity model, a variation of the basic EOQ model, assumes non-instantaneous replenishment.

Question 35

The time between orders is variable and the order quantity is constant in the periodic inventory system.

Question 36

The economic order quantity (EOQ) model determines the optimal order size that minimizes total annual inventory costs.

Question 37

The number of orders can be calculated by dividing the daily demand rate, d, by the order quantity,

Question 38

Periodic inventory systems initiate a new order when the level of inventory falls to the reorder to point.

Question 39

Continuous inventory systems often incorporate information technology to improve the speed and accuracy of data entry and retrieval.

Question 40

With the economic order quantity (EOQ) model, the number of orders increases as the order size decreases.

Question 41

In general, as the order size increases

A) ordering costs decrease and carrying costs increase.
B) ordering costs increase and carrying costs decrease.
C) both ordering and carrying costs increase.
D) both ordering and carrying costs decrease.

Question 42

The _______________ classification system classifies inventory according to its dollar value to the firm.

A) periodic
B) continuous
C) ABC
D) EOQ

Question 43

Inventory management includes all the following activities except determining

A) the amount of inventory to keep in stock.
B) customer demand .
C) how much to order.
D) when to order.

Question 44

Drugstores are one example of a business using a periodic inventory system because of their dependence on vendor-managed inventory.

Question 45

___________ demand items are used in the process of producing a final product.

A) Dependent
B) Independent
C) Seasonal
D) Cyclical

Question 46

When demand is uncertain, a safety stock is often added to the expected demand during lead time to prevent a stockout.

Question 47

Inventory costs _________________ when higher levels of inventory are needed to improve customer service.

A) decrease
B) stay the same
C) increase
D) cannot be estimated

Question 48

The traditional approach to inventory management is to maintain a level of inventory that

A) minimizes inventory cost.
B) maximizes customer service.
C) maintains a balance between inventory cost and customer service.
D) None of these answer choices is correct.

Question 49

Which of the following is not considered a form of inventory?

A) items being transported
B) tools and equipment
C) purchased parts and supplies
D) backorders

Question 50

________________ is additional inventory kept on hand to meet variations in product demand.

A) Safety stock
B) Buffer stock
C) Finished stock
D) None of these answer choices is correct.

Question 51

Maintaining a desired service level influences the level of safety stock.

Question 52

A company may purchase larger amounts of inventory for all the following reasons except

A) to reduce inventory carrying costs.
B) to take advantage of quantity discounts.
C) as a hedge against future price increases.
D) to obtain lower prices purchasing in volume.

Question 53

Customer service is defined as the ability to satisfy ______________ demand.

A) internal
B) external
C) internal and external
D) None of these answer choices is correct.

Question 54

The order quantity cannot be calculated for a periodic inventory system that experiences variable demand.

Question 55

A quantity discount is a price discount available if a predetermined number of units is ordered.

Question 56

With the quantity discount model, the first price point examined is the one associated with the EOQ quantity calculated using the basic model.

Question 57

Which of the following is not an example of inventory carried to satisfy independent demand?

A) spare parts
B) finished product
C) raw materials
D) All the answer choices are correct.

Question 58

Receiving, handling and shipping costs are examples of

A) shortage costs.
B) carrying costs.
C) ordering costs.
D) None of these answer choices is correct.

Question 59

With the quantity discount model, the basic EOQ total cost formula is modified to include a term, PD, calculated by taking the purchase price multiplied by annual demand.

Question 60

________________ is additional inventory kept at various stages of the production process to provide independence between stages to avoid work stoppages.

A) Safety stock
B) Buffer stock
C) Finished stock
D) None of these answer choices is correct.

Question 61

What is the inventory ordering cost using the economic order quantity?

A) $200
B) $500
C) $866
D) $1,000

Question 62

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate. The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the restaurant orders the economic order quantity then the average inventory for napkins is

A) 62,500 boxes.
B) 31,250 boxes.
C) 5,000 boxes.
D) 2,500 boxes.

Question 63

The quantity discount model considers

A) purchase price.
B) carrying cost.
C) ordering cost.
D) All of these answer choices are correct.

Question 64

From a supplier perspective the purpose of a quantity discount is to get the customer to buy

A) more than the economic order quantity.
B) less than the economic order quantity.
C) the economic order quantity.
D) None of these answer choices is correct.

Question 65

A service level of 95% means there is a 0.95 probability

A) of a stockout.
B) that supply will exceed demand.
C) that demand will be met during the lead time.
D) None of these answer choices is correct.

Question 66

What is the economic order quantity?

A) 100
B) 115.47
C) 200
D) 500

Question 67

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate. The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the restaurant orders the economic order quantity then the total annual inventory cost for napkins is

A) $62,500.
B) $5,000.
C) $2,500.
D) $1,250.

Question 68

Which of the following is not an assumption of the EOQ model?

A) demand is known and constant
B) no shortages allowed
C) lead time is determined by quantity ordered
D) order quantity is received all at once

Question 69

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate over the 365 days that it is open. The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the restaurant orders the economic order quantity then the time between orders (order cycle) is

A) 125 days.
B) 75.3 days.
C) 32.8 days.
D) 29.2 days.

Question 70

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate. If the cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00, then the economic order quantity for napkins is

A) 62,500 boxes.
B) 10,000 boxes.
C) 5,000 boxes.
D) 2,500 boxes.

Question 71

Annual demand for a product is 40,000 units. The product is used at a constant rate over the 365 days the company is open every year. The annual holding cost for the product is estimated to be $2.50 per unit, and the cost of placing each order is $125.00. If the company orders according to the economic order quantity (EOQ) formula, then the time between orders (order cycle time) is

A) 18.25 days.
B) 24.33 days.
C) 36.5 days.
D) 73 days.

Question 72

Annual demand for a product is 40,000 units. The product is used at a constant rate over the 365 days the company is open every year. The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00. If the company orders according to the economic order quantity (EOQ) formula then ________ orders are placed annually.

A) 5
B) 10
C) 15
D) 20

Question 73

A continuous inventory system is also known as a

A) fixed-time period system
B) fixed-order quantity system
C) fixed-lead time system
D) fixed-amount system

Question 74

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate. The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the restaurant orders the economic order quantity each time an order is placed, then ______orders are placed during the year.

A) 13
B) 15
C) 20
D) 25

Question 75

Which of the following is not an assumption of the EOQ model? a) demand rate is known and constant
B) shortages are allowed
C) lead time is constant
D) order quantity is received all at once

Question 76

The economic order quantity is most widely used for determining how much to order in

A) a periodic inventory system.
B) a continuous inventory system.
C) an on-demand inventory system.
D) None of these answer choices is correct.

Question 77

Annual demand for a product is 40,000 units. The product is used at a constant rate over the 365 days the company is open every year. The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00. If the company orders according to the economic order quantity (EOQ) formula then its total annual inventory cost for this product is
A) $100,000.

A) $50,000.
B) $5,000.
C) $2,500.

Question 78

Annual demand for a product is 40,000 units. The product is used at a constant rate over the 365 days the company is open every year. The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00. If the company orders according to the economic order quantity (EOQ) formula then its optimal order size for this product is

A) 2,000 units.
B) 4,000 units.
C) 20,000 units.
D) 40,000 units.

Question 79

Annual demand for a product is 40,000 units. The product is used at a constant rate over the 365 days the company is open every year. The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00. If the company orders according to the economic order quantity (EOQ) formula, then its average inventory level for this product is

A) 20,000 units.
B) 10,000 units.
C) 2,500 units.
D) 1,000 units.

Question 80

A periodic inventory system is also known as a

A) fixed-time period system.
B) fixed-order quantity system.
C) fixed-lead time system.
D) fixed-amount system.