Deck 20: Inventory Management

Question 1

An inventory system is a set of policies and controls that monitors levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be.

Answer 1

True

Question 2

In inventory models, high holding costs tend to favor low inventory levels and frequent replenishment.

Answer 2

True

Question 3

Fixed-order quantity inventory systems determine the reorder point, R, and the order quantity, Q, values.

Answer 3

True

Question 4

Shortage costs are precise and easy to measure.

Question 5

The fixed-order quantity inventory model favors less expensive items because average inventory is lower.

Question 6

Fixed-order quantity inventory models are "time triggered."

Question 7

Fixed-order quantity inventory models are "event triggered."

Question 8

In inventory models, high holding costs tend to favor high inventory levels.

Question 9

The fixed-time period inventory system has a smaller average inventory than the fixed-order-quantity system because it must also protect against stock outs during the review period when inventory is checked.

Question 10

Fixed-time period inventory models are "time triggered."

Question 11

One of the basic purposes of inventory analysis in manufacturing and stock keeping services is to specify when items should be ordered.

Question 12

Dependent demand inventory levels are usually managed by calculations using calculus-driven, cost-minimizing models.

Question 13

Using the probability approach, we assume that the demand over a period of time is normally distributed.

Question 14

The computation of a firm's inventory position is found by taking the inventory on hand and adding it to the on-order inventory, and then subtracting backordered inventory.

Question 15

Fixed-time period inventory models are "event triggered."

Question 16

The fixed-order quantity inventory model is more appropriate for important items such as critical repair parts because there is closer monitoring and, therefore, quicker response to a potential stock out.

Question 17

One of the basic purposes of inventory analysis in manufacturing and stock keeping services is to determine the level of quality to specify.

Question 18

The fixed-order quantity inventory model requires more time to maintain because every addition or withdrawal is logged.

Question 19

If the cost to change from producing one product to producing another were zero, the lot size would be very small.

Question 20

One of the basic purposes of inventory analysis in manufacturing and stock keeping services is to determine how large the orders to vendors should be.

Question 21

When stocked items are sold, the optimal inventory decision using marginal analysis is to stock that quantity where the probable profit from the sale or use of the last unit is equal to or greater than the probable losses if the last unit remains unsold.

Question 22

Fixed-order quantity systems assume a random depletion of inventory, with less than an immediate order when a reorder point is reached.

Question 23

The optimal stocking decision in inventory management, when using marginal analysis, occurs at the point where the benefits derived from carrying the next unit are more than the costs for that unit.

Question 24

Safety stock can be defined as the amount of inventory carried in addition to the expected demand.

Question 25

The standard fixed-time period model assumes that inventory is never counted but determined by EOQ measures.

Question 26

The "sawtooth effect," named after turn around artist Al "Chainsaw" Dunlap, is the severe reduction of inventory and service levels that occurs when a firm has gone through a hostile takeover.

Question 27

Price-break models deal with the fact that the selling price of an item varies with the order size.

Question 28

Some inventory situations involve placing orders to cover only one demand period or to cover short-lived items at frequent intervals.

Question 29

Safety stock is not necessary in any fixed-time period system.

Question 30

If demand for an item is normally distributed, we plan for demand to be twice the average demand and carry 2 standard deviations worth of safety stock inventory.

Question 31

Safety stock can be computed when using the fixed-order quantity inventory model by multiplying a z value representing the number of standard deviations to achieve a service level or probability by the standard deviation of periodic demand.

Question 32

The key difference between a fixed-order quantity inventory model where demand is known and one where demand is uncertain is in computing the reorder point.

Question 33

In a price-break model of lot sizing, to find the lowest-cost order quantity, it is sometimes necessary to calculate the economic order quantity for each possible price.

Question 34

In the fixed-time period model it is necessary to determine the inventory currently on hand to calculate the size of the order to place with a vendor.

Question 35

In a price-break model of lot sizing, to find the lowest-cost order quantity, it is sometimes necessary to calculate the economic order quantity for each possible price and to check to see whether the lowest cost quantity is feasible.

Question 36

Price-break models deal with discrete or step changes in price as order size changes rather than a per-unit change.

Question 37

Fixed-time period inventory models generate order quantities that vary from time period to time period, depending on the usage rate.

Question 38

Cycle counting is a physical inventory-taking technique in which inventory is counted on a frequent basis rather than once or twice a year.

Question 39

Price-break models deal with the fact that the selling price of an item generally increases as the order size increases.

Question 40

The "sawtooth effect" is named after the jagged shape of the graph of inventory levels over time.

Question 41

High setup costs favor producing in small batches.

Question 42

A Q-model requires more record keeping than a P-model.

Question 43

A Q-model has variable order quantities while a P-model has fixed order quantities.

Question 44

Which of the following is not a reason to carry inventory?

A) To provide a safeguard for variation in raw material delivery time
B) To take advantage of economic purchase-order size
C) To maintain independence of operations
D) To meet variation in product demand
E) To keep the stock out of the hands of competitors

Question 45

Which of the following is one of the categories of manufacturing inventory?

A) Economic order inventory
B) Work-in-process
C) Quality units
D) JIT inventory
E) Reorder point

Question 46

An inventory control system is designed to keep employees from pilfering inventory from a firm.

Question 47

A Q-model places orders at regular time intervals while a P-model places orders irregularly.

Question 48

Setup and production change costs are different costs.

Question 49

Firms keep supplies of inventory for which of the following reasons?

A) To maintain dependence of operations
B) To provide a feeling of security for the workforce
C) To meet variation in product demand
D) To hedge against wage increases
E) In case the supplier changes the design

Question 50

In-transit inventory is material being moved from suppliers to customers.

Question 51

A Q-model requires more inventory than does a P-model.

Question 52

Which of the following is not one of the categories of manufacturing inventory?

A) Raw materials
B) Finished products
C) Component parts
D) Just-in-time
E) Supplies

Question 53

When material is ordered from a vendor, which of the following is not a reason for delays in the order arriving on time?

A) Normal variation in shipping time
B) A shortage of material at the vendor's plant causing backlogs
C) An unexpected strike at the vendor's plant
D) A lost order
E) Redundant ordering systems

Question 54

Holding and carrying costs are different costs.

Question 55

It takes more time to maintain a Q-model than it does a P-model.

Question 56

Which of the following is not an inventory cost?

A) Holding
B) Production change
C) Shipping
D) Ordering
E) Shortage

Question 57

In a price-break model of lot sizing, the lowest cost quantity is always feasible.

Question 58

When developing inventory cost models, which of the following is not included as a costs to place an order?

A) Phone calls
B) Taxes
C) Clerical
D) Calculating quantity to order
E) Postage

Question 59

With the fixed-order quantity model, there is no need for regular inventory monitoring.

Question 60

Manufacturing inventory is the materials that companies need to run their factories.

Question 61

If annual demand is 35,000 units, the ordering cost is $50 per order, and the holding cost is $0.65 per unit per year, which of the following is the optimal order quantity using the fixed-order-quantity model?

A) 5,060
B) 2,320
C) 2,133
D) 2,004
E) 1,866

Question 62

If annual demand is 12,000 units, the ordering cost is $6 per order, and the holding cost is $2.50 per unit per year, which of the following is the optimal order quantity using the fixed-order-quantity model?

A) 576
B) 240
C) 120.4
D) 60.56
E) 56.03

Question 63

Assuming no safety stock, what is the reorder point (R) given an average daily demand of 78 units and a lead time of 3 days?

A) 421
B) 234
C) 78
D) 26
E) 312

Question 64

Which of the following is an assumption of the basic fixed-order quantity inventory model?

A) Lead times are averaged.
B) Ordering costs are variable.
C) Price per unit of product is constant.
D) Backorders are allowed.
E) Stock-out costs are high.

Question 65

In making any decision that affects inventory size, which of the following costs do not need to be considered?

A) Holding costs
B) Setup costs
C) Ordering costs
D) Fixed costs
E) Shortage costs

Question 66

If annual demand is 50,000 units, the ordering cost is $25 per order, and the holding cost is $5 per unit per year, which of the following is the optimal order quantity using the fixed-order-quantity model?

A) 909
B) 707
C) 634
D) 500
E) 141

Question 67

Which of the following is a fixed-time-period inventory model?

A) The EOQ model
B) The least cost method
C) The Q-model
D) Periodic system model
E) Just-in-time model

Question 68

Using the probability approach to determine an inventory safety stock and wanting to be 95 percent sure of covering inventory demand, which of the following is the number of standard deviations necessary to have the 95 percent service probability assured?

A) 1.28
B) 1.64
C) 1.96
D) 2.00
E) 2.18

Question 69

A company is planning for its financing needs and uses the basic fixed-order-quantity inventory model. Which of the following is the total cost (TC) of the inventory given an annual demand of 10,000, setup cost of $32, a holding cost per unit per year of $4, an EOQ of 400 units, and a cost per unit of inventory of $150?

A) $1,501,600
B) $1,498,200
C) $500,687
D) $499,313
E) None of these choices are correct

Question 70

Which of the following is not an assumption of the basic fixed-order quantity inventory model?

A) Ordering or setup costs are constant.
B) Inventory holding cost is based on average inventory.
C) Returns to scale of holding inventory are diminishing.
D) Lead time is constant.
E) Demand for the product is uniform throughout the period.

Question 71

Which of the following is the set of all cost components that make up the fixed-order-quantity total annual cost (TC) function?

A) Annual purchasing cost, annual ordering cost, fixed cost
B) Annual holding cost, annual ordering cost, unit cost
C) Annual holding cost, annual ordering cost, annual purchasing cost
D) Annual lead time cost, annual holding cost, annual purchasing cost
E) Annual unit cost, annual setup cost, annual purchasing cost

Question 72

Assuming no safety stock, what is the reorder point (R) given an average daily demand of 50 units, a lead time of 10 days, and 625 units on hand?

A) 550
B) 500
C) 715
D) 450
E) 475

Question 73

Which of the following is usually included as an inventory holding cost?

A) Order placing
B) Breakage
C) Typing up an order
D) Quantity discounts
E) Annualized cost of materials

Question 74

A company has recorded the last six days of daily demand on a single product it sells. Those values are 37, 115, 93, 112, 73, and 110. The time from when an order is placed to when it arrives at the company from its vendor is 3 days. Assuming the basic fixed-order-quantity inventory model fits this situation and no safety stock is needed, which of the following is the reorder point (R)?

A) 540
B) 270
C) 115
D) 90
E) 60

Question 75

Which of the following is not included as an inventory holding cost?

A) Annualized cost of materials
B) Handling
C) Insurance
D) Pilferage
E) Storage facilities

Question 76

Which of the following is a fixed-order-quantity inventory model?

A) Economic order quantity model
B) The ABC model
C) Periodic replenishment model
D) Cycle counting model
E) P model

Question 77

Which of the following is the symbol used in the textbook for the cost of placing an order in the fixed-order-quantity inventory model?

A) C
B) TC
C) H
D) Q
E) S

Question 78

A company has recorded the last five days of daily demand on its only product. Those values are 120, 125, 124, 128, and 133. The time from when an order is placed to when it arrives at the company from its vendor is 5 days. Assuming the basic fixed-order-quantity inventory model fits this situation and no safety stock is needed, which of the following is the reorder point (R)?

A) 120
B) 126
C) 630
D) 950
E) 1,200

Question 79

Using the fixed-order-quantity model, which of the following is the total ordering cost of inventory given an annual demand of 36,000 units, a cost per order of $80, and a holding cost per unit per year of $4?

A) $849
B) $1,200
C) $1,889
D) $2,267
E) $2,400

Question 80

Which of the following is a perpetual system for inventory management?

A) Fixed-time period
B) Fixed-order quantity
C) P-model
D) First-in-first-out
E) The wheel of inventory