Deck 11: Inventory Management

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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 stockout.

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

Inventory is defined as the stock of any item or resource used in an organization.

Question 12

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.

Question 13

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 back-ordered inventory.

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

Shortage costs are precise and easy to measure.

Question 20

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

Question 21

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

Question 22

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 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 is not necessary in any fixed-time period system.

Question 25

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

Question 26

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 27

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

Question 28

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 29

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

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

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

Question 32

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 33

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 34

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

Question 35

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

Question 36

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

Question 37

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 38

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

Question 39

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 40

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

Question 41

The costs associated with reduced inventory results in lower profits.

Question 42

One of the daily,delicate balancing acts that Logistics managers have to perform involves the trade-off between customer satisfaction and cost to serve.

Question 43

One of the drivers of the direct-to-store (direct distribution)approach is the decrease in trucking industry regulation.

Question 44

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

Question 45

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 46

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 47

One of the drivers of the direct-to-store (direct distribution)approach is the increase in global sourcing.

Question 48

One of the drivers of the direct-to-store (direct distribution)approach is the upstream migration of value-added logistics services.

Question 49

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 50

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 51

One of the daily,delicate balancing acts that Logistics managers have to perform involves the trade-off between inventory costs and the cost of stock-outs.

Question 52

The average cost of inventory in the United States is 20 to 25 percent of its value.

Question 53

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

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

Question 54

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)Re-order point

Question 55

Savings from reduced inventory results in increased profit.

Question 56

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 57

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 58

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 59

One of the daily,delicate balancing acts that Logistics managers have to perform involves the trade-off between transportation costs and fulfillment speed.

Question 60

You should visualize inventory as stacks of money sitting on forklifts,on shelves,and in trucks and planes while in transit.

Question 61

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 62

In order to determine the standard deviation of usage during lead time in the reorder point formula for a fixed-order quantity inventory model,which of the following must be computed first?

A)Standard deviation of daily demand
B)Number of standard deviations for a specific service probability
C)Stockout cost
D)Economic order quantity
E)Safety stock level

Question 63

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)Back orders are allowed
E)Stock-out costs are high

Question 64

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 65

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 66

company has recorded the last five days of daily demand on their 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 67

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

Question 68

Which of the following are fixed-order quantity inventory models?

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

Question 69

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?
79)

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

Question 70

Which of the following are fixed-time period inventory models?

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

Question 71

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

Question 72

company has recorded the last six days of daily demand on a single product they sell.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 73

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)Diminishing returns to scale of holding inventory
D)Lead time is constant
E)Demand for the product is uniform throughout the period

Question 74

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 75

If it takes a supplier four days to deliver an order once it has been placed and the standard deviation of daily demand is 10,which of the following is the standard deviation of usage during lead time?

A)10
B)20
C)40
D)100
E)400

Question 76

Assuming no safety stock,what is the re-order 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 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

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 79

To take into consideration demand uncertainty in reorder point (R)calculations,what do we add to the product of the average daily demand and lead time in days when calculating the value of R?

A)The product of average daily demand times a standard deviation of lead time
B)A "z" value times the lead time in days
C)The standard deviation of vendor lead time times the standard deviation of demand
D)The product of lead time in days times the standard deviation of lead time
E)The product of the standard deviation of demand variability and a "z" score relating to a specific service probability.

Question 80

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