Deck 11: Inventory Management

Question 1

What is MRO an acronym for? What is the function of MRO inventories?

Answer 1

MRO inventories are devoted to maintenance/repair/operating supplies. They exist because the need and timing for maintenance and repair of some equipment are unknown.

Question 2

Amazon's original concept of operating without inventory has given way to a model in which Amazon is a world-class leader in ________.

Answer 2

warehouse automation and management

Question 3

One function of inventory is to take advantage of quantity discounts.

Answer 3

True

Question 4

Which of the following statements regarding Amazon.com is FALSE?

A) The company was opened by Jeff Bezos in 1995.
B) The company was founded as a "virtual" retailer with no inventory.
C) The company is now a world-class leader in warehouse automation and management.
D) The company uses both United Parcel Service and the U.S. Postal Service as shippers.
E) Amazon obtains its competitive advantage mainly through effective worker scheduling.

Question 5

A major challenge in inventory management is to maintain a balance between inventory investment and customer service.

Question 6

Explain what "decoupling" means in the context of inventory management.

Question 7

In ABC analysis, "A" items are the least tightly controlled.

Question 8

________ inventory is material that is usually purchased, but has yet to enter the manufacturing process.

Question 9

ABC analysis classifies inventoried items into three groups, usually based on annual units or quantities used.

Question 10

Which of the following statements regarding work-in-process (WIP) inventory is FALSE?

A) Reducing flow time reduces WIP inventory.
B) During most of the time a product is "being made," it is in fact sitting idle.
C) Actual "run" time is usually a significant portion of the material flow time.
D) WIP exists because of flow time.
E) WIP inventory describes products or components that are no longer raw materials but have yet to become finished products.

Question 11

Work-in-process inventory is devoted to maintenance, repair, and operating materials.

Question 12

Which of the following would NOT generally be a motive for a firm to hold inventories?

A) to decouple various parts of the production process
B) to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand
C) to take advantage of quantity discounts
D) to minimize holding costs
E) to hedge against inflation

Question 13

Work-in-process inventory describes components that have been purchased but not processed.

Question 14

According to the global company profile, Amazon.com's advantage in inventory management comes from its almost fanatical use of economic order quantity and safety stock calculations.

Question 15

What are the four functions of inventory?

Question 16

Identify the four types of inventory.

Question 17

Which of the following is NOT one of the four main types of inventory?

A) raw material inventory
B) work-in-process inventory
C) maintenance/repair/operating supply inventory
D) safety stock inventory
E) finished-goods inventory

Question 18

Which of the following is a function of inventory?

A) to decouple various parts of the production process
B) to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand
C) to take advantage of quantity discounts
D) to hedge against inflation
E) All of these are functions of inventory.

Question 19

Inventory that separates various parts of the production process performs a(n) ________ function.

Question 20

Which item to order and with which supplier the order should be placed are the two fundamental issues in inventory management.

Question 21

All EXCEPT which of the following statements about ABC analysis are TRUE?

A) In ABC analysis, inventory may be categorized by measures other than dollar volume.
B) ABC analysis categorizes on-hand inventory into three groups based on annual dollar volume.
C) ABC analysis is an application of the Pareto principle.
D) ABC analysis suggests that all items require the same high degree of control.
E) ABC analysis suggests that there are the critical few and the trivial many inventory items.

Question 22

________ is a method for dividing on-hand inventory into three classifications based on annual dollar volume.

Question 23

Major retailers lose ________ of overall profits due to poor or inaccurate inventory records.

A) 1% to 3%
B) 3% to 5%
C) 5% to 10%
D) 10% to 25%
E) 50%

Question 24

ABC analysis is based on the presumption that carefully controlling all items is necessary to produce important inventory savings.

Question 25

Which of the following statements regarding control of service inventories is TRUE?

A) Service inventory is a fictional concept, because services are intangible.
B) Service inventory needs no safety stock, because there's no such thing as a service stockout.
C) Effective control of all goods leaving the facility is one applicable technique.
D) Service inventory has carrying costs but no setup costs.
E) Good personnel selection, training, and discipline are easy.

Question 26

________ is a continuing reconciliation of inventory with inventory records.

Question 27

Retail inventory that is unaccounted for between receipt and time of sale is known as shrinkage.

Question 28

One advantage of cycle counting is that it maintains accurate inventory records.

Question 29

ABC analysis is based upon the principle that:

A) all items in inventory must be monitored very closely.
B) there are usually a few critical items, and many items that are less critical.
C) an item is critical if its usage is high.
D) more time should be spent on class "C" items because there are many more of them.
E) as with grade distributions in many MBA courses, there should be more medium-level "B" items than either "A" or "C" items.

Question 30

Cycle counting:

A) is a process by which inventory records are verified once a year.
B) eliminates annual inventory adjustments.
C) provides a measure of inventory turnover.
D) assumes that all inventory records must be verified with the same frequency.
E) assumes that the most frequently used items must be counted more frequently.

Question 31

Which of the following statements about ABC analysis is FALSE?

A) ABC analysis is based on the presumption that controlling the few most important items produces the vast majority of inventory savings.
B) In ABC analysis, "A" items should have tighter physical inventory control than "B" or "C" items have.
C) In ABC analysis, forecasting methods for "C" items may be less sophisticated than for "A" items.
D) ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.
E) Criteria other than annual dollar volume, such as high holding cost or delivery problems, can determine item classification in ABC analysis.

Question 32

A two-bin system is a variation of the ________ system.

Question 33

Your company has compiled the following data on the small set of products that comprise the specialty repair parts division. Perform ABC analysis on the data. Over which product do you suggest the firm keep the tightest control?

A) R11
B) S22
C) T33
D) U44
E) V55

Question 34

ABC analysis divides on-hand inventory into three classes, generally based upon which of the following?

A) item quality
B) unit price
C) the number of units on hand
D) annual demand
E) annual dollar volume

Question 35

Your company has compiled the following data on the small set of products that comprise the specialty repair parts division. Perform ABC analysis on the data. Over which product do you suggest the firm keep the least control?

A) R11
B) S22
C) T33
D) U44
E) V55

Question 36

Research suggests that shoppers are more likely to make a purchase from displays with many products than the ones with a more limited selection.

Question 37

What tracks both receipts and subtractions from inventory on a continuing basis?

A) perpetual inventory
B) periodic system
C) cycle counting
D) ABC analysis
E) shrinkage

Question 38

Cycle counting is an inventory control technique exclusively used for cyclical items.

Question 39

Among the advantages of cycle counting is that it:

A) makes the annual physical inventory more acceptable to management.
B) does not require the detailed records necessary when annual physical inventory is used.
C) does not require highly trained people.
D) allows more rapid identification of errors and consequent remedial action than is possible with annual physical inventory.
E) does not need to be performed for less expensive items.

Question 40

In cycle counting, the frequency of item counting and stock verification usually varies from item to item depending upon the item's classification.

Question 41

Describe ABC inventory analysis in one sentence. Identify three policies that may be based upon the results of an ABC analysis.

Question 42

Identify the typical components that constitute inventory holding or carrying costs.

Question 43

In the simple EOQ model, if the carrying cost were to double, the EOQ would also double.

Question 44

In manufacturing environments, setup cost is highly correlated with ________.

Question 45

Insurance and taxes on inventory are part of the costs known as setup or ordering costs.

Question 46

If setup costs are reduced by substantial reductions in setup time, the production order quantity is also reduced.

Question 47

Perform an ABC analysis on the following set of products.

Question 48

Identify three techniques to control service inventories.

Question 49

Identify the typical cost components that constitute ordering costs in inventory systems.

Question 50

Define shrinkage. Identify three or more examples of shrinkage.

Question 51

Which category of inventory holding costs has a much higher percentage than average for rapid-change industries such as tablets and smart phones?

A) housing costs
B) material handling costs
C) labor cost
D) investment costs
E) pilferage, scrap, and obsolescence

Question 52

In the simple EOQ model, if annual demand were to increase, the EOQ would increase proportionately.

Question 53

Which of the following is an element of inventory holding costs?

A) housing costs
B) material handling costs
C) investment costs
D) pilferage, scrap, and obsolescence
E) All of these are elements of inventory holding costs.

Question 54

The EOQ model is best suited for items whose demand is dependent on other products.

Question 55

Your company has compiled the following data on the small set of products that comprise the specialty repair parts division. Perform ABC analysis on the data. Over which products do you suggest the firm keep the tightest control? Explain.

Question 56

Several inventory models assume "independent demand." Explain what that term means and why the assumption is important.

Question 57

In the production order quantity model, inventory does not arrive in a single moment but flows in at a steady rate, resulting in a smaller production/order quantity than in an otherwise identical EOQ problem.

Question 58

For an auto manufacturer, the demand for automobile components would be considered as independent demand.

Question 59

What is cycle counting?

Question 60

At the economic order quantity, holding costs are equal to product costs.

Question 61

Most inventory models attempt to minimize:

A) the likelihood of a stockout.
B) the number of items ordered.
C) total inventory-based costs.
D) the number of orders placed.
E) the safety stock.

Question 62

A product whose EOQ is 400 units experiences a 50% increase in demand. The new EOQ is:

A) unchanged.
B) increased by less than 50%.
C) increased by 50%.
D) increased by more than 50%.
E) cannot be determined

Question 63

Which of the following statements about the basic EOQ model is FALSE?

A) If the setup cost were to decrease, the EOQ would fall.
B) If annual demand were to double, the number of orders per year would increase by 73%.
C) If the holding cost were to increase, the EOQ would decrease.
D) If annual demand were to double, the EOQ would rise.
E) None. All of these statements are true.

Question 64

In the quantity discount model, the cost of acquiring goods (product cost) is a factor in determining lot size.

Question 65

In the production order quantity model, the cost of acquiring goods (product cost) is a factor in determining lot size.

Question 66

Which of the following statements about the basic EOQ model is TRUE?

A) If the ordering cost were to double, the EOQ would rise.
B) If annual demand were to double, the EOQ would increase.
C) If the carrying cost were to increase, the EOQ would fall.
D) If annual demand were to double, the number of orders per year would increase.
E) All of these statements are true.

Question 67

For a certain item, the cost-minimizing order quantity obtained with the basic EOQ model is 200 units, and the total annual inventory (carrying and setup) cost is $400. What is the inventory carrying cost per unit per year for this item?

A) $1.00
B) $2.00
C) $3.00
D) $150.00
E) not enough data to determine

Question 68

A product has a demand of 4000 units per year. Ordering cost is $20, and holding cost is $4 per unit per year. The EOQ model is appropriate. The cost-minimizing solution for this product will cost ________ per year in total annual inventory (holding and setup) costs.

A) $400
B) $800
C) $1200
D) Zero; this is a class C item.
E) Cannot be determined because the unit price is not known.

Question 69

In the basic EOQ model, if the cost of placing an order doubles, and all other values remain constant, the EOQ will:

A) increase by about 41%.
B) increase by 100%.
C) increase by 200%.
D) increase, but more data is needed to say by how much.
E) either increase or decrease.

Question 70

In the quantity discount model, it is possible to have a cost-minimizing solution where annual ordering costs do not equal annual carrying costs.

Question 71

A product whose EOQ is 40 units experiences an increase in ordering cost from $10 per order to $90 per order. The revised EOQ is:

A) three times as large.
B) one-third as large.
C) nine times as large.
D) one-ninth as large.
E) cannot be determined

Question 72

Which of the following is NOT an assumption of the economic order quantity model shown below? Q* =

A) Demand is known, constant, and independent.
B) Lead time is known and consistent.
C) Quantity discounts are not possible.
D) Production and use can occur simultaneously.
E) The only variable costs are setup cost and holding (or carrying) cost.

Question 73

If the actual order quantity is the economic order quantity in a problem that meets the assumptions of the economic order quantity model shown below, the average amount of inventory on hand: Q* =

A) is smaller than the holding cost per unit.
B) is zero.
C) is one-half of the economic order quantity.
D) goes down if the setup cost per order goes up.
E) goes down if the holding cost per unit goes down.

Question 74

What is the primary purpose of the basic economic order quantity model shown below? Q* =

A) to calculate the reorder point, so that replenishments take place at the proper time
B) to minimize the sum of carrying cost and holding cost
C) to maximize the customer service level
D) to minimize the sum of setup cost and holding cost
E) to calculate the optimum safety stock

Question 75

A product has a demand of 4000 units per year. Ordering cost is $20, and holding cost is $4 per unit per year. The cost-minimizing solution for this product is to order:

A) all 4000 units at one time.
B) 200 units per order.
C) every 20 days.
D) 10 times per year.
E) none of these

Question 76

A certain type of computer costs $10 per unit, and the annual holding cost is 25% of the value of the item. Annual demand is 1,000 units, and the order cost is $150 per order. What is the approximate economic order quantity?

A) 120,000
B) 866
C) 110
D) 1095
E) 346

Question 77

The reorder point is the inventory level at which action is taken to replenish the stocked item.

Question 78

The two most basic inventory questions answered by the typical inventory model are:

A) timing of orders and cost of orders.
B) order quantity and cost of orders.
C) timing of orders and order quantity.
D) order quantity and service level.
E) ordering cost and carrying cost.

Question 79

Variations in setup costs, holding costs, and demand usually make relatively modest differences in total cost because the EOQ model is robust.

Question 80

In the basic EOQ model, if D = 6000 per year, S = $100, and holding cost = $10 per unit per month, what is the economic order quantity?

A) 24
B) 100
C) 141
D) 346
E) 600