Question 1

What are two logical ways in which to base the time between orders in a periodic review system?
A) replenishment lead time or EOQ calculations
B) replenishment lead time or bottleneck cycle time
C) convenience or replenishment lead time
D) convenience or EOQ calculations
E) convenience or bottleneck cycle time

Accepted Answer

The answer of What are two logical ways in which...

Question 2

How can the EPQ model be economically reconciled with just-in-time (JIT) production?
A) Reduce annual demand (D).
B) Increase annual holding cost per unit (H).
C) Decrease ordering cost (S).
D) Increase annual holding cost per unit (H) and Decrease ordering cost (S).
E) The two cannot be reconciled.

Accepted Answer

To reconcile the EPQ model with JIT production, it is necessary to decrease the ordering cost (S) to reduce the frequency of orders and increase the order size, which will align with the JIT philosophy of reducing inventory and waste. This will not impact the EPQ equation as long as the annual demand (D) remains constant and the annual holding cost per unit (H) does not increase to offset the savings from reduced ordering costs. Therefore, the best choice is to decrease ordering cost (S).

Question 3

Under a periodic review system, enough inventory must be carried to protect against stockout for the ___________.
A) replenishment lead time
B) review period
C) replenishment lead time plus the review period
D) bottleneck cycle time
E) bottleneck cycle time plus the replenishment lead time

Accepted Answer

In a periodic review system, inventory is reviewed and replenished at fixed intervals, or the review period. Therefore, enough inventory must be carried to protect against stockout during the review period and the replenishment lead time (time to receive new inventory). The bottleneck cycle time is not relevant to determining inventory levels in a periodic review system.

Question 4

Consider a periodic review inventory system with a lead time of two weeks and a review period of seven weeks. If the standard deviation of weekly demand is 200 and the desired cycle-service level is 86%, what should the safety stock equal?
A) 305
B) 516
C) 600
D) 648
E) 1944

Accepted Answer

R = dL + SS; see Appendix B SS = z$\sigma$dL

Question 5

What costs are considered in the quantity discount model?
A) annual ordering costs + annual holding costs
B) annual purchasing costs + annual holding costs + annual ordering costs
C) annual ordering costs + annual holding costs + annual shortage costs 
D) annual purchasing costs + annual ordering costs + annual shortage costs 
E) ordering costs per order + annual holding costs

Accepted Answer

The quantity discount model considers annual purchasing costs, annual holding costs, and annual ordering costs.

Question 6

What implies that about 20% of the inventory items will account for about 80% of the inventory value?
A) Little's law
B) Friedman's law
C) Pablo's proposition
D) Keyne's law
E) Pareto's law

Accepted Answer

This is known as Pareto's law or the 80/20 rule, which states that roughly 80% of effects are from 20% of causes. In this case, 20% of the inventory items hold 80% of its value.

Question 7

If the costs (S and H) and demands (D) are the same, which of the following is not true with regard to the EPQ model as compared to the EOQ model?
A) The EPQ model produces a lower total annual cost.
B) The maximum inventory level is lower under the EPQ model than under the EOQ model.
C) The two models use different formulas to compute annual ordering cost.
D) The inventory depletion rate is the same for both models.
E) The two models use different formulas to compute annual holding cost.

Accepted Answer

The answer of If the costs (S and H) and...

Question 8

In a periodic review system, if you are basing your time between orders on the EOQ, what should be its length in weeks?
A) EOQ / 52
B) EOQ / average weekly demand
C) average weekly demand / EOQ
D) 52 / EOQ
E) (EOQ)(average weekly demand)

Accepted Answer

In a periodic review system, the time between orders should match how long it takes to sell the EOQ amount. Therefore, you divide the EOQ by the average weekly demand to find out how many weeks it takes to sell through the EOQ.

Question 9

Consider a periodic review system. The target inventory level is 1000 units. It is time to review the item, and the on-hand inventory level is 200 units. How many units should be ordered?
A) 800
B) 1000
C) 1200
D) the EOQ amount
E) the safety stock amount

Accepted Answer

Hint: TI = d(RP + L) + SS; see Appendix B SS = z$\sigma$dL; Q = TI - OH

Question 10

What are the two major decisions to be made when using the periodic review system?
A) the time between orders and the target inventory level
B) the time between orders and the on-hand inventory
C) the target inventory level and the on-hand inventory
D) the time between orders and the order quantity
E) the target inventory level and the order quantity

Accepted Answer

The two major decisions to be made when using the periodic review system are the time between orders and the target inventory level. The time between orders determines how often inventory is reviewed and ordering is done, while the target inventory level is the amount of inventory that needs to be maintained until the next review period. These two decisions are interdependent and have a significant impact on inventory holding costs, stockouts, and order frequency.

Question 11

What does TBO stand for?
A) time-based optimization
B) target-based ordering
C) target-based optimization
D) time-based ordering
E) time between orders

Accepted Answer

The answer of What does TBO stand for?
A) time-based optimization
B)...

Question 12

If the costs (S and H) and demands (D) are the same, which of the following is not true with regard to the EPQ model as compared to the EOQ model?
A) The EPQ model produces a lower total annual cost.
B) The maximum inventory level is lower under the EPQ model than under the EOQ model.
C) Both models use the same formula to compute annual ordering cost.
D) The inventory depletion rate is not the same for both models.
E) The two models use different formulas to compute annual holding cost.

Accepted Answer

The inventory depletion rate is not the same for both models.

Question 13

Which of the following statements is not true?
A) A two-bin system allows a firm to not have to keep perpetual inventory records.
B) Using perpetual inventory records results in different order quantities than using a two-bin system.
C) In a two-bin system, units in the second bin are not used until the first bin is empty.
D) In a two-bin system, the size of the second bin should equal the demand during replenishment lead time.
E) Perpetual inventory records are appropriate when using the EPQ model.

Accepted Answer

The statement that using perpetual inventory records results in different order quantities than using a two-bin system is not necessarily true. Both systems aim to manage inventory efficiently, but they do so in different ways. The order quantities can be similar if the systems are set up to meet the same demand levels and reorder points. The key difference lies in how inventory levels are monitored and managed, not necessarily in the order quantities.

Question 14

A (an) _________________ inventory record provides an up-to-date inventory balance by recording all inventory transactions as they happen.
A) infinite
B) everlasting
C) constant
D) permanent
E) perpetual

Accepted Answer

"Perpetual" means ongoing or continuous, which accurately describes an inventory record that is constantly updated with all inventory transactions as they happen. The other options are not as relevant or accurate in describing this type of inventory record.

Question 15

The formula for calculating safety stock when an estimate of demand during lead time and its standard deviation are known is? A) SS = lead time * standard deviation B) SS = lead time * z C) SS = z* standard deviation D) SS = z*σ_dl E) SS = σ_dl* mean

Accepted Answer

Safety stock (SS) calculation when demand during lead time and its standard deviation (σ) are known involves using the formula SS = z*σ, where z is the Z-score or the number of standard deviations from the mean, reflecting the desired service level. The correct formula is represented by D, which uses special characters to denote the multiplication of z (service level factor) by the standard deviation of demand during lead time (σ), although it's presented in a complex format.

Question 16

Which of the following is used in determining the order quantity in the periodic review system?
A) reorder point
B) critical ratio
C) target inventory level
D) EOQ
E) EPQ

Accepted Answer

In the periodic review system, the order quantity is determined by calculating the difference between the target inventory level and the current inventory level at the time of review. Therefore, the target inventory level is used in determining the order quantity in this system. Reorder point is used to determine when to place an order, critical ratio is used in the continuous review system, and EOQ and EPQ are used in determining the optimal order quantity in different inventory systems.

Question 17

In a two-bin system, what does the quantity in the second bin represent?
A) the EOQ
B) the EPQ
C) demand during replenishment lead time
D) the quantity in the first bin
E) safety stock

Accepted Answer

The quantity in the second bin represents the demand during replenishment lead time, ensuring that there is enough inventory available while the first bin is being replenished.

Question 18

Consider a periodic review system with a lead time of two weeks and a review period of seven weeks. If the average demand per week is 1000 units and 300 units of safety stock are held, what should the target inventory level be?
A) 7300
B) 1300
C) 9000
D) 9300
E) 3300

Accepted Answer

Hint: TI = d(RP + L) + SS; see Appendix B SS = z$\sigma$dL

Question 19

_____________________ is the probability that demand during lead time will not exceed on-hand inventory.
A) EOQ service level
B) Fill rate
C) Stockout risk
D) Order-cycle service level
E) Lead time service level

Accepted Answer

The definition provided matches that of the order-cycle service level, which is the probability that demand during lead time will not exceed on-hand inventory. The other options are not applicable to this definition.

Question 20

If the costs (S and H) and demands (D) are the same, which of the following is true with regard to the EPQ model as compared to the EOQ model?
A) The lot size under the EPQ model is bigger than under the EOQ model.
B) The maximum inventory level is higher under the EPQ model than under the EOQ model.
C) The two models use different formulas to compute annual ordering cost.
D) The inventory depletion rate is not the same for both models.
E) Both models use the same formula to compute annual holding cost.

Accepted Answer

The answer of If the costs (S and H) and...

Quiz 12: Inventory Management

What are two logical ways in which to base the time between orders in a periodic review system?

How can the EPQ model be economically reconciled with just-in-time (JIT) production?

Under a periodic review system, enough inventory must be carried to protect against stockout for the ___________.

Consider a periodic review inventory system with a lead time of two weeks and a review period of seven weeks. If the standard deviation of weekly demand is 200 and the desired cycle-service level is 86%, what should the safety stock equal?

What costs are considered in the quantity discount model?

What implies that about 20% of the inventory items will account for about 80% of the inventory value?

If the costs (S and H) and demands (D) are the same, which of the following is not true with regard to the EPQ model as compared to the EOQ model?

In a periodic review system, if you are basing your time between orders on the EOQ, what should be its length in weeks?

Consider a periodic review system. The target inventory level is 1000 units. It is time to review the item, and the on-hand inventory level is 200 units. How many units should be ordered?

What are the two major decisions to be made when using the periodic review system?

What does TBO stand for?

If the costs (S and H) and demands (D) are the same, which of the following is not true with regard to the EPQ model as compared to the EOQ model?

Which of the following statements is not true?

A (an) _________________ inventory record provides an up-to-date inventory balance by recording all inventory transactions as they happen.

The formula for calculating safety stock when an estimate of demand during lead time and its standard deviation are known is?

Which of the following is used in determining the order quantity in the periodic review system?

In a two-bin system, what does the quantity in the second bin represent?

Consider a periodic review system with a lead time of two weeks and a review period of seven weeks. If the average demand per week is 1000 units and 300 units of safety stock are held, what should the target inventory level be?

_____________________ is the probability that demand during lead time will not exceed on-hand inventory.

If the costs (S and H) and demands (D) are the same, which of the following is true with regard to the EPQ model as compared to the EOQ model?