Question 1

JIT purchasing is done using
A)short-term contracts emphasizing price.
B)long-term contracts based on quality, reliability, and price.
C)short-term contracts based on quality, reliability, and price.
D)inventory to hedge against stockouts and price increases.

Accepted Answer

JIT (Just-In-Time) purchasing often involves long-term contracts that focus on quality, reliability, and price, ensuring a steady supply of materials without the need for large inventories.

Question 2

One of the traditional reasons for holding inventory is to take advantage of quantity discounts and hedge against future price increases. The JIT solution is to
A)reduce setup costs.
B)reduce lead time.
C)use long-term contracts with suppliers.
D)use total quality control.

Accepted Answer

Long-term contracts with suppliers can help mitigate the need for holding inventory for the purpose of taking advantage of quantity discounts and hedging against future price increases, as they can secure stable pricing and supply over time.

Question 3

When comparing the traditional approach of inventory management to JIT, which of the following statements is true?
A)The traditional approach accepts the existence of setup costs, but not carrying costs or inventories. JIT accepts the existence of setup and carrying costs, but pushes for zero inventories.
B)The traditional approach accepts the existence of carrying costs and inventories, but not setup costs. JIT accepts the existence of setup costs but not carrying costs and pushes for zero inventories.
C)The traditional approach accepts the existence of both setup costs and carrying costs and attempts to find the order quantity that best balances those costs. JIT does not accept either setup costs or carrying costs and pushes for zero inventory levels.
D)The traditional approach does not accept carrying costs or setup costs. JIT minimizes both setup and carrying costs by finding the best order quantity to balance these costs.

Accepted Answer

The traditional approach balances setup and carrying costs to determine optimal order quantities, while JIT aims to minimize or eliminate inventory, thus not accepting carrying costs.

Question 4

One of the traditional reasons for holding inventory is to avoid shutdowns due to defective parts. The JIT solution is to
A)reduce setup costs.
B)reduce lead time.
C)use total preventive maintenance.
D)use total quality control.

Accepted Answer

The JIT (Just-In-Time) approach emphasizes quality control to ensure that parts are produced without defects, eliminating the need for holding inventory as a buffer against defective parts. Total quality control is a core component of JIT, aiming to improve the quality of products and processes to minimize waste and errors.

Question 5

One of the traditional reasons for holding inventory is to minimize total carrying costs and setup costs. The JIT solution is to
A)reduce setup costs.
B)reduce lead time.
C)use total preventive maintenance.
D)use total quality control.

Accepted Answer

The answer of One of the traditional reasons for holding...

Question 6

One of the traditional reasons for holding finished goods inventories is to ensure a firm's ability to meet delivery dates. The JIT solution is to
A)reduce setup costs.
B)reduce lead time.
C)use total preventive maintenance.
D)use total quality control.

Accepted Answer

Just-in-time (JIT) focuses on reducing lead time, which allows the firm to operate with lower inventory levels while still being able to meet delivery dates. This is achieved through various methods such as reducing setup time, implementing quick response manufacturing, and establishing close relationships with suppliers. While total preventive maintenance and total quality control are important aspects of JIT, reducing lead time is the key solution for ensuring on-time delivery without accumulating high levels of finished goods inventory. Therefore, option B is the best choice.

Question 7

Which of the following reduces lead time to meet delivery dates by reducing setup times?
A)Just-in-time manufacturing
B)Linear programming
C)Constrained optimization
D)Kanban system

Accepted Answer

Just-in-time manufacturing reduces lead time by minimizing setup times and inventory levels, ensuring that materials and products are available only as needed for production and delivery.

Question 8

Olga Company has an economic order quantity for item B of 100 units. The annual demand for the product is 1,400 units, and the unit carrying cost per year is $7. What is the cost of placing an order?
A)$25
B)$8
C)$200
D)$2

Accepted Answer

The Economic Order Quantity (EOQ) formula is given by $\sqrt{\frac{2DS}{H}}$, where $D$ is the annual demand, $S$ is the cost of placing an order, and $H$ is the annual holding cost per unit. Rearranging the formula to solve for $S$, we get $S = \frac{H \cdot EOQ^2}{2D}$. Plugging in the given values: $S = \frac{7 \cdot 100^2}{2 \cdot 1400} = 25$. Therefore, the cost of placing an order is $25.

Question 9

One of the traditional reasons for holding inventory is to avoid shutdowns due to unavailability of materials. The JIT solution is to
A)reduce setup costs.
B)reduce lead time.
C)use long-term contracts with suppliers.
D)use total preventive maintenance.

Accepted Answer

The answer of One of the traditional reasons for holding...

Question 10

Which of the following elements could be determined by using the economic order quantity formula?
A)the optimum size of production run
B)reorder point
C)safety stock
D)annual demand

Accepted Answer

The economic order quantity formula calculates the optimal production run size that minimizes total inventory costs, given inputs such as annual demand, holding cost, and ordering cost. Therefore, the answer is A, the optimum size of production run.

Question 11

The reorder point in the EOQ model is
A)the day of the month for reordering.
B)when all of the inventory has been used.
C)when the inventory level is below the order quantity.
D)the inventory level at which an order for additional units is placed.

Accepted Answer

The reorder point in the EOQ model is the inventory level at which an order for additional units is placed to avoid stock-out situations. It is calculated as the product of the lead time demand and the lead time plus safety stock. Option A is incorrect as it refers to a fixed time period for reordering, which may not consider changes in demand or inventory levels. Option B is incorrect as it assumes that all inventory will be used up before replenishment, which is not practical or efficient. Option C is incorrect as it does not consider the lead time required to receive the new inventory order.

Question 12

Which of the following equations determines the total annual carrying costs when no safety stock is kept?
A)Cost of placing an order × Order quantity
B)Cost of placing an order × Number of orders per year
C)Cost of placing an order × One-half of the order quantity
D)Unit carrying costs per year × One-half of the order quantity

Accepted Answer

The equation for total carrying costs when no safety stock is kept is the product of the unit carrying costs per year and one-half of the order quantity. This is because without safety stock, inventory is constantly being depleted and reordered, resulting in an average inventory level of one-half of the order quantity. Option A is the equation for ordering costs, option B is the equation for total ordering costs, and option C is an incorrect formula that does not consider the unit carrying costs per year.

Question 13

Walrus Company has the following information available concerning one of its inventory items: $$\begin{array} { l r } 
\text { Cost of placing an or der } & \$ 30.00 \
\text { Unit carrying cost per year } & \$ 3.00 \
\text { Annual unit demand } & 6,625 \
\text { Safety stock } & 125 \
\text { Average daily demand } & 25 \
\text { Normal lead time in days } & 10
\end{array}$$ The economic order quantity for this item is
A)1,500 units.
B)364 units.
C)140 units.
D)725 units.

Accepted Answer

The Economic Order Quantity (EOQ) formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the annual demand, $S$ is the cost of placing an order, and $H$ is the annual holding cost per unit. Substituting the given values: $D = 6,625$, $S = \$30$, and $H = \$3$, we get $\sqrt{\frac{2 \times 6625 \times 30}{3}} = \sqrt{132500} \approx 364$ units.

Question 14

The JIT approach to inventory management
A)allows greater flexibility as to when products can be manufactured.
B)results in higher inventory levels but reduces ordering and setup costs.
C)results in lower inventory carrying costs.
D)none of these.

Accepted Answer

The JIT (Just In Time) approach to inventory management aims to minimize inventory carrying costs by ordering and producing only what is needed when it is needed, which results in lower inventory levels. This approach also allows greater flexibility as to when products can be manufactured since they are produced only in response to actual customer demand. However, it may result in higher ordering and setup costs.

Question 15

JIT avoids shutdowns due to materials shortage in all of the following ways EXCEPT
A)using total preventive maintenance.
B)holding inventory.
C)using total quality control to reduce defective materials.
D)working with suppliers to ensure the availability of materials.

Accepted Answer

JIT (Just-in-Time) philosophy emphasizes on reducing inventory and maintaining a steady flow of production with minimal inventory. Therefore, holding inventory does not align with the JIT principle. Instead, JIT emphasizes total preventive maintenance, total quality control, and working closely with suppliers to avoid material shortages and shutdowns.

Question 16

Olga Company has an economic order quantity for item B of 100 units. The annual demand for the product is 1,400 units, and the unit carrying cost per year is $7. The company operates 200 days a year, the lead time for the item is ten days, and the safety stock is 100 units.
What is the reorder point?
A)70 units
B)100 units
C)1000 units
D)170 units

Accepted Answer

Reorder point = (average daily demand x lead time) + safety stock

Average daily demand = 1,400 / 200 = 7 units per day

Lead time = 10 days

Safety stock = 100 units

Reorder point = (7 x 10) + 100 = 170 units

So, the reorder point is 170 units.

The best choice is D as it gives the correct calculation of reorder point based on the given information.

Question 17

One of the traditional reasons for holding inventory is to avoid a shutdown due to machine failure. The JIT solution is to
A)reduce setup costs.
B)reduce lead time.
C)use total preventive maintenance.
D)use total quality control.

Accepted Answer

The JIT (Just-In-Time) approach emphasizes minimizing inventory levels and improving the efficiency of production processes. One of the strategies to avoid shutdowns due to machine failure, within the JIT framework, is to use total preventive maintenance. This involves regular and systematic inspection, maintenance, and repair of equipment to prevent sudden failures that could halt production. By ensuring that machinery is always in optimal working condition, the need for holding inventory as a buffer against machine failure is reduced.

Question 18

The objectives of JIT are achieved by
A)controlling costs.
B)improving delivery performance.
C)improving quality.
D)all of these.

Accepted Answer

Just-In-Time (JIT) aims at achieving multiple objectives such as controlling costs, improving delivery performance, and improving quality. Therefore, the best choice is D, as it includes all three objectives.

Question 19

Walrus Company has the following information available concerning one of its inventory items: $$\begin{array} { l r } 
\text { Cost of placing an or der } & \$ 30.00 \
\text { Unit carrying cost per year } & \$ 3.00 \
\text { Annual unit demand } & 6,625 \
\text { Safety stock } & 125 \
\text { Average daily demand } & 25 \
\text { Normal lead time in days } & 10
\end{array}$$ The reorder point for the inventory item is
A)275 units.
B)375 units.
C)625 units.
D)1,525 units.

Accepted Answer

The reorder point is calculated as (Average daily demand x Normal lead time) + Safety stock = (25 x 10) + 125 = 375 units.

Question 20

Walrus Company has the following information available concerning one of its inventory items: $$\begin{array} { l r } 
\text { Cost of placing an or der } & \$ 30.00 \
\text { Unit carrying cost per year } & \$ 3.00 \
\text { Annual unit demand } & 6,625 \
\text { Safety stock } & 125 \
\text { Average daily demand } & 25 \
\text { Normal lead time in days } & 10
\end{array}$$ If there is a delay in shipping the item, approximately how many days can be covered by the safety stock?
A)5 days
B)31 days
C)26 days
D)110 days

Accepted Answer

The safety stock is designed to cover the demand during the lead time in case of delays. Given the average daily demand is 25 units, and the safety stock is 125 units, the safety stock can cover 125 units / 25 units/day = 5 days of demand.

Quiz 20: Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

JIT purchasing is done using

One of the traditional reasons for holding inventory is to take advantage of quantity discounts and hedge against future price increases. The JIT solution is to

When comparing the traditional approach of inventory management to JIT, which of the following statements is true?

One of the traditional reasons for holding inventory is to avoid shutdowns due to defective parts. The JIT solution is to

One of the traditional reasons for holding inventory is to minimize total carrying costs and setup costs. The JIT solution is to

One of the traditional reasons for holding finished goods inventories is to ensure a firm's ability to meet delivery dates. The JIT solution is to

Which of the following reduces lead time to meet delivery dates by reducing setup times?

Olga Company has an economic order quantity for item B of 100 units. The annual demand for the product is 1,400 units, and the unit carrying cost per year is $7. What is the cost of placing an order?

One of the traditional reasons for holding inventory is to avoid shutdowns due to unavailability of materials. The JIT solution is to

Which of the following elements could be determined by using the economic order quantity formula?

The reorder point in the EOQ model is

Which of the following equations determines the total annual carrying costs when no safety stock is kept?

The JIT approach to inventory management

JIT avoids shutdowns due to materials shortage in all of the following ways EXCEPT

One of the traditional reasons for holding inventory is to avoid a shutdown due to machine failure. The JIT solution is to

The objectives of JIT are achieved by