Deck 15: Independent Demand Inventory

Question 1

A computerized inventory system checks inventory levels at the end of the week and produces suggested orders for the coming week.What kind of system is this?

A)A periodic review system
B)A continuous review system
C)A service level system
D)An ABC inventory system

Answer 1

A periodic review system

Question 2

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

A)Annual demand is constant and known.
B)Lead-time is constant and known.
C)No stockouts are allowed.
D)Quantity discounts are available.

Answer 2

Quantity discounts are available.

Question 3

Capacity,as opposed to inventory:

A)Is the rate at which a stock can be depleted
B)Covers anticipated changes in demand or supply
C)Is resources that provide the potential to produce items
D)Is a stock of raw materials,work in process,or finished goods used to facilitate production or satisfy customer demands

Answer 3

Is resources that provide the potential to produce items

Question 4

A particular brand of soap has a lead time of three weeks to reorder,a weekly standard deviation of ten units and a weekly average usage of 30 units.The reorder point for this soap,assuming a 95% service level (z = 1.645),is:

A)16.45 units
B)28.50 units
C)106.45 units
D)118.49 units

Question 5

A paint supplier that places orders for different colors of paint for delivery at the same time should use a:

A)P system
B)Q system
C)Dependent demand inventory model
D)Quantity discount model

Question 6

Which of the following statements is NOT true about managing inventory in supply chains?

A)In a supply chain,a single firm typically controls all of the inventories that are required while manufacturing a product.
B)Coordination among supply chain partners is essential while managing inventory across the supply chain.
C)The total cost minimization approach can be applied while managing inventory across the supply chain.
D)Vendor managed inventory is an initiative shifting responsibility for managing inventory to suppliers.

Question 7

Transportation cost is an example of:

A)Item cost
B)Ordering cost
C)Carrying cost
D)Storage cost

Question 8

Which cost defines the cost of capital?

A)Item cost
B)Storage cost
C)Deterioration cost
D)Opportunity cost of investment in inventory

Question 9

Which of the following is NOT a purpose of inventory?

A)To protect against uncertainties
B)To allow economic production of batches
C)To provide for transit
D)To decrease obsolescence

Question 10

ABC analysis requires that inventory be classified according to:

A)Alphabetical order by item name
B)Annual dollar usage
C)Activity-based costs
D)Due date

Question 11

The carrying cost for inventory consists of which cost components?

A)Capital cost,obsolescence cost,and ordering cost
B)Obsolescence cost,capital cost,and stockout cost
C)Obsolescence cost,storage cost,and capital cost
D)Storage cost,handling cost,and obsolescence cost

Question 12

In a Q system,average inventory:

A)Is depleted at a constant rate
B)Is set to cover average demand over the lead time plus the review interval
C)Is relatively flat in the neighborhood of the minimum
D)Tends to be less than under a system of periodic review (P system)

Question 13

Of the cost elements making up total inventory cost,which is the most difficult to estimate?

A)Stockout costs
B)Holding costs
C)Carrying costs
D)Item cost

Question 14

The total cost per year for question 9,assuming no stockouts,is approximately equal to:

A)The total cost cannot be determined from the given information.
B)$273.86
C)$547.72
D)$2,738.60
E)$5,477.20

Question 15

Which cost is NOT part of inventory ordering costs?

A)Transportation costs
B)Obsolescence costs
C)Setup costs
D)Receiving costs

Question 16

In the basic EOQ model,if annual demand and carrying costs double,the EOQ:

A)Doubles
B)Increases,but less than double
C)Decreases
D)Remains the same

Question 17

Unlike a requirements philosophy of inventory management,a replenishment philosophy:

A)Calls for orders based on higher-level items
B)Applies to raw materials inventories
C)Is appropriate given independent demand
D)Causes demand to be dependent

Question 18

Which of the following statements is true about a Q system?

A)It does not have a reorder point but rather a target inventory.
B)The system is completely determined by the two parameters,Q and R.
C)It does not have an EOQ because the quantity varies according to demand.
D)The order interval is fixed-not the order quantity.

Question 19

Given that unit cost = $25,annual carrying charge = 10%,annual demand = 4000 units and ordering cost = $15 per order,the EOQ is:

A)22 units
B)155 units
C)219 units
D)300 units

Question 20

Independent demand inventory consists of:

A)Inventory whose demand comes from independent suppliers
B)Inventory that is independent of any known rules of demand and supply
C)Demand that is related to the demand for another item
D)Inventory whose demand is determined by market conditions outside the firm

Question 21

Dependent demand items are subject to market forces and often have predictable demand patterns.

Question 22

In an ABC Classification,it is logical to employ a periodic review system to monitor A items.

Question 23

At the Economic Order Quantity:

A)The annual ordering cost for an item is greater than the annual holding cost
B)The annual ordering cost and annual holding cost for an item are equal
C)The annual ordering cost for an item is less than the annual holding cost
D)None of the above

Question 24

Safety stock inventory is:

A)Equivalent to the Economic Order Quantity
B)Providing for inventory that is in transit from one location to another
C)Maintained to absorb uncertainty in,for example,delivery lead time from suppliers
D)All of the above

Question 25

Assuming that we are currently placing orders in EOQ amounts,an increase in the order quantity would increase annual ordering costs.

Question 26

If the actual order quantity Q is much larger than the Economic Order Quantity:

A)The firm is paying high annual holding costs
B)The firm is paying high annual ordering costs
C)The firm is paying total costs that are equivalent to EOQ costs
D)The firm should change its EOQ

Question 27

The EOQ formula could be modified to express demand and the carrying rate on a monthly basis.

Question 28

The choice between P and Q systems should be based on:

A)Timing of replenishment
B)Type of record keeping
C)Cost of the item
D)All of the above

Question 29

The average inventory level is defined as the difference between the cycle stock and the safety stock.

Question 30

Transit inventories are also referred to as pipeline inventories because they consist of materials that are on their way from one point to another point in the supply chain.

Question 31

Lincoln Machine Tool Company maintains an inventory pool consisting of 10 items.Each of these items has a unique demand pattern and may require a different kind of inventory management system.The annual demand pattern and the unit cost of these items are given in the following table.Conduct an ABC inventory analysis and classify these items into A,B,and C type of inventories.Suggest suitable methods for managing these three distinct types of inventories.

Question 32

In general,it is extremely difficult to estimate stockout costs and hence we use the desired service levels while computing the reorder points.

Question 33

Demand for an item is 10 units per week and delivery lead time is 3 weeks.The safety stock is known to be 11 units.Using a Q system,what is the reorder point (R)?

A)Less than 20
B)30
C)41
D)None of the above

Question 34

Service levels is:

A)The percentage of time the system has an item on hand
B)The percentage of demand filled from stock
C)The probability that all orders are filled from stock
D)All of the above

Question 35

Demand for an item is 20 units per week and delivery lead time is 2 weeks.The safety stock is known to be 14 units.Using a P system,and assuming a P value of 3 weeks,what is the target inventory level (T)?

A)Less than 50
B)Between 50 and 100 (including the values of 50 and 100)
C)More than 100
D)None of the above

Question 36

Which of the following is correct?

A)Anticipation inventory of raw materials may be held when a firm expects raw materials shortages in the future
B)Pipeline inventory quantities are affected by mode of transportation
C)Safety stock may be held in raw materials,work-in-process,or finished goods
D)All of the above

Question 37

If the Economic Order Quantity for an item is 140,what is the average number of cycle inventory units?

A)There are no units in cycle inventory
B)70 units
C)140 units
D)More than 140 units

Question 38

In the basic EOQ model,if the lead time doubles,the EOQ will:

A)Decrease by half
B)Double
C)Remain the same
D)Increase,but not double

Question 39

A decrease in an item's lead-time will increase the amount of safety stock required to maintain a constant service level.