Deck 12: Inventory Management

Question 1

The EOQ approach minimizes the annual ordering cost of inventory.

Answer 1

False

Question 2

Retail stores typically hold three types of inventory:
raw materials,work-in-process,and finished goods.

Answer 2

False

Question 3

Inspection of goods for quality and quantity upon arrival is part of ordering cost.

Answer 3

True

Question 4

EOQ inventory models are primarily concerned with the timing of orders.

Question 5

Warehousing costs,insurance costs,and spoilage costs are all associated with holding costs.

Question 6

In the A-B-C classification of inventory,C items typically range from 50 to 60 percent of the number of items,but only 5 to 10 percent of the annual dollar value (ADV).

Question 7

In the A-B-C classification of inventory,items classified under the "A" category typically have high unit costs,but low levels for annual dollar value (ADV).

Question 8

Two fundamental decisions that buyers or inventory analysts must make about each item held in the inventory are the timing and size of orders.

Question 9

The A-B-C approach involves classifying inventory items based on their unit cost.

Question 10

A two-bin system for inventory control eliminates the need for perpetual inventory tracking.

Question 11

An important function of inventories in manufacturing is to decouple operations.

Question 12

In the A-B-C approach to classify inventory,items that have high unit costs are always classified as "A" category items.

Question 13

The principal objective of inventory management is to maximize customer service levels by ensuring items are available at all times.

Question 14

Ordering costs are usually expressed as a variable cost equal to a percentage of the total purchase cost of an order.

Question 15

The inventory position for each item is the quantity on hand plus the quantity on order minus the quantity backordered.

Question 16

The overall objective of inventory management is to achieve satisfactory levels of customer service by having sufficient quantities while keeping inventory costs reasonable.

Question 17

A lower inventory turnover ratio indicates more efficient use of inventories.

Question 18

A fixed order quantity/reorder point model for inventory control is usually used with perpetual tracking.

Question 19

The two main concerns of inventory management relate to the costs of ordering and holding inventories and the level of customer service (item availability).

Question 20

Cross-docking or eliminating distribution centres (DCs)reduces the need for work-in-process inventory.

Question 21

The reorder point (ROP)models determine the point at which the inventory,in terms of quantity must be reordered.

Question 22

In fixed order-quantity inventory planning,the reorder point (ROP)can include safety stock held to account for demand variability.

Question 23

The average inventory level and the number of orders per year are inversely related; as one increases,the other decreases.

Question 24

In the EOQ with quantity discount model,the optimum quantity will always be found on the lowest total cost curve.

Question 25

The reorder point (ROP)models for inventory management are used to calculate the time between orders.

Question 26

Holding or carrying cost is directly proportional to order size,as order size increases,so does the holding cost.

Question 27

Variability in demand and/or lead time can be compensated for by safety stock.

Question 28

The EOQ with quantity discounts model,focuses on purchase cost and does not account for holding and ordering costs.

Question 29

The demand rate is not one of the factors used in determining the reorder point ROP.

Question 30

In the basic EOQ model,at the optimal order quantity annual holding cost is equal to the annual ordering cost.

Question 31

The total cost curve for inventory costs is relatively flat near the EOQ.

Question 32

Annual ordering cost is inversely related to order size,as the size of orders decreases the annual cost of ordering increases.

Question 33

The EOQ should be regarded as an approximate quantity rather than an exact quantity,so rounding off the calculated value is acceptable.

Question 34

In the EOQ with quantity discounts model,a graph of the total cost curves will have the same EOQ for each curve.

Question 35

In the Economic Production Quantity (EPQ)model,if usage and production/delivery rates are equal,there will be no inventory build-up,and thus the order quantity for batches or lots cannot be calculated.

Question 36

Using the EOQ model,the higher an item's holding costs,the more frequently it will be ordered.

Question 37

Annual ordering cost is a function of order size.

Question 38

In the EOQ with planned shortages,it is assumed there is no cost is associated with backorders.

Question 39

Total cost in the EOQ with quantity discount model is calculated in the same way as it is in the basic EOQ model.

Question 40

The basic EOQ model assumes that the demand varies widely throughout the year.

Question 41

Both the reorder point (ROP)and fixed order interval models factor in the amount of inventory on hand (inventory position)when placing an order,but for different situations.

Question 42

With fixed-interval ordering,perpetual tracking of inventory isn't required.

Question 43

When the item is offered for resale,shortage costs in the single period model can include a charge for loss of customer goodwill.

Question 44

In the single-period model,with discrete stocking levels,the service level must equal or exceed,the ratio C_s/(C_s + C_e).

Question 45

The single period model can be very helpful in determining when to order.

Question 46

The fixed order interval model requires a continuous monitoring of inventory levels.

Question 47

In the fixed order interval model,also known as the order up to level model,the order size is the same for each cycle.

Question 48

The reorder point (ROP)must be recomputed before each order (i.e.,once every order cycle).

Question 49

Many retail operations which deal with multiple items from the same supplier often use fixed interval ordering rather than reorder point models.

Question 50

The service level for inventory planning is associated with the risk of a stock-out.

Question 51

When the inventory item is a spare part for a production machine,shortage cost in the single period model refers to the cost of lost production.

Question 52

The fixed order interval model requires a larger amount of safety stock than the reorder point (ROP)model for the same risk of a stock-out.

Question 53

In the single period model,the service level is the probability that demand will not exceed the stocking level in any period.

Question 54

Service level in a single period model is the ratio of shortage cost to the sum of shortage and excess cost.

Question 55

The single-period model for inventory management is well suited for planning orders for perishables.

Question 56

Service level can be stated in terms of the lead time for an order cycle or as an annual amount.

Question 57

The single period model can be very helpful in determining how much to order.

Question 58

When excess cost is equal to shortage cost in the single period model,the optimum stocking level falls in the center of the demand distribution for the item.

Question 59

Reorder point (ROP)models assume that demand during lead time is composed of a series of dependent daily demands.

Question 60

A distribution centre (DC)that supplies inventory to a network of retail outlets is an example of a multi-echelon inventory management system.

Question 61

In the A-B-C classification system,items which account for 70 to 80 percent of the annual dollar value (ADV)but relatively few inventory items in terms of the number of SKUs would be classified as:

A) A items.
B) B items.
C) C items.
D) either A items or B items.
E) either B items or C items.

Question 62

Which of the following is not a suggestion for an inventory storage system?

A) Store heavy or fast-moving items on the floor.
B) Store obsolete items in the highest locations.
C) Have the right level of automation.
D) Have controlled access to the building.
E) Make sure the storeroom is not cluttered.

Question 63

Which of the following is not one of the assumptions of the basic EOQ model?

A) Annual demand requirements are known.
B) Lead time does not vary.
C) Each order is received in a single delivery.
D) Quantity discounts are available.
E) Only one product is involved.

Question 64

Which of the following is not a function of inventory?

A) Allowing for time, while goods are transported
B) Hedging against price increases
C) Preventing decoupling of operations
D) Taking advantage of quantity discounts
E) Preventing shortages

Question 65

Allocation methods are used by distribution centres (DCs)when they have excess capacity relative to the orders received by the retailers they serve.

Question 66

In an A-B-C inventory system,the typical percentage of the number of types of items in inventory that represent the A classification items is about:

A) 15 - 20 percent.
B) 20 - 30 percent.
C) 40 - 50 percent.
D) 70 - 80 percent.
E) More than 90 percent.

Question 67

Which of the following does not match with respect to inventory counting and replenishment models?

A) Periodic counting - fixed-order-interval model
B) Periodic counting - small retailers
C) Two-bin system - grocery stores
D) Perpetual tracking - fixed order-quantity model
E) Perpetual tracking - reorder point (ROP) model

Question 68

The goal of the basic EOQ model is to:

A) Minimize order size.
B) Minimize order cost.
C) Minimize holding cost.
D) Minimize the sum of purchasing and ordering costs.
E) Minimize the sum of ordering and holding costs.

Question 69

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

A) Lead time does not vary.
B) Only one product is involved.
C) Holding costs are independent of price.
D) Each order is received in a single delivery.
E) There are no quantity discounts.

Question 70

In the A-B-C classification system,items which account for about 5 - 10 percent of the annual dollar value (ADV)but 50 - 60 percent of the SKUs in inventory would be classified as:

A) A items.
B) B items.
C) C items.
D) either A items or B items.
E) either B items or C items.

Question 71

With an A-B-C system,an item that had a high demand quantity but a low annual dollar volume would probably be classified as:

A) A
B) B
C) C
D) A or B
E) none of the above

Question 72

In a two-bin inventory system,the amount contained in the second bin is equal to the:

A) reorder point, the amount required until an order arrives.
B) the EOQ
C) amount in the first bin.
D) optimum stocking level.
E) safety stock.

Question 73

What function of inventory is the term "anticipation inventory" associated with?

A) Hedging against price increases
B) Smoothing seasonal demand or production
C) Decoupling operations
D) Taking advantage of quantity discounts
E) Preventing shortages

Question 74

The basic EOQ model is most relevant for which one of the following?

A) Ordering items with dependent demand.
B) Determination of safety stock.
C) Ordering perishable items.
D) Determining fixed interval order quantities.
E) Determining fixed order quantities.

Question 75

Which is not considered a holding cost?

A) Warehousing costs
B) Insurance
C) Building depreciation
D) Opportunity cost of funds
E) Preparing purchase orders

Question 76

The purpose of "cycle counting" is to:

A) count all the items in inventory.
B) determine the optimum re-order point.
C) reduce discrepancies between inventory records and actual.
D) reduce theft.
E) none of the choices.

Question 77

Laser scanning of universal product codes at retail checkout counters provides which of the following advantages?
I)Increased speed and accuracy at checkout
II)Continuous information on inventories
III)Improved levels of customer service
IV)Elimination of periodic counting of inventory

A) I, II, and IV only
B) II, III, and IV only
C) I, II, and III only
D) I, III, and IV only
E) I, II, III, and IV

Question 78

Which of the following would not generally be considered as one of the functions for holding inventories?

A) Smoothing seasonal production
B) Decoupling successive operations
C) Hedging against price increases
D) Minimizing holding costs
E) Protecting against stock-outs

Question 79

Which of the following is not included in ordering cost?

A) Time spent paying invoices
B) Moving delivered goods to temporary storage
C) Inspecting incoming goods
D) Taking an inventory count to determine how much needs to be ordered
E) Cost of the items purchased

Question 80

Effective use of inventories would be implied from which of the following?
I)High number of back orders
II)Low inventory turnover
III)High numbers of days of inventory

A) I and II
B) I and III
C) II and III
D) I, II, and III
E) None of the choices.