Question 1

Companies hold a supply of inventory for all of the following reasons EXCEPT:
A)meet variation in product demand
B)increase production change/setup costs
C)allow production scheduling flexibility
D)purchase in bulk to take advantage of quantity discounts
E)maintain independence of operations (Decoupling)

Accepted Answer

Holding inventory does not increase production change/setup costs. In fact, holding inventory can help reduce changeover costs by allowing for longer production runs and more efficient use of machinery. The other options are valid reasons for holding inventory.

Question 2

The primary purpose of the basic economic order quantity model is
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

Accepted Answer

The basic Economic Order Quantity (EOQ) model aims to minimize the total cost of inventory management by finding the ideal order quantity that minimizes the sum of setup costs (or ordering costs) and holding costs (costs of carrying inventory).

Question 3

Which of the following is not an example of an ordering cost for products purchased from a supplier?
A)the cost of transmitting the order
B)the cost of receiving the product
C)the cost associated with processing the invoice
D)the cost of pilferage while in storage
E)the cost of clerical staff for preparing the purchase

Accepted Answer

The cost of pilferage while in storage is not an example of an ordering cost, but rather a cost associated with inventory management and security. Ordering costs are expenses related to the process of placing and receiving orders, such as transmitting orders, processing invoices, and paying for clerical staff to prepare purchases.

Question 4

Which of the following is a disadvantage of excessive inventory?
A)it creates an unnecessary waste of scarce resources.
B)It leads to higher inventory ordering cost.
C)It leads to lower average inventory.
D)It eliminates cycle stock.
E)It reduces the need to conduct cycle count.

Accepted Answer

Excessive inventory leads to unnecessary waste of scarce resources such as storage space, labor, and materials. It also ties up valuable capital that could be used for other purposes, such as investment in research and development or expansion of the business. In addition, excessive inventory can lead to increased costs due to obsolescence, spoilage, and theft.

Question 5

Which of the following is a global RFID challenge?
A)Foreign firms are skeptical about sharing potentially confidential information with foreign businesses.
B)Globally,the RFID industry does not have its own UHF spectrum allocation.
C)UHF signals are reflected by metal and absorbed by water.
D)All of the above.
E)None of these.

Accepted Answer

All of the choices listed represent global challenges for RFID technology. A) highlights concerns about data privacy and security in international contexts. B) points out the lack of a unified UHF spectrum allocation for RFID, complicating global standardization and interoperability. C) mentions technical limitations of RFID technology, which can affect its effectiveness and implementation on a global scale.

Question 6

What inventory factor may be omitted from the basic EOQ derivation because it is a constant?
A)Annual order-processing cost
B)Annual purchase cost of goods
C)Annual capital cost
D)Annual setup costs
E)all of these

Accepted Answer

The annual purchase cost of goods is a constant since it remains unchanged despite the number of orders placed. Therefore, it may be omitted from the basic EOQ derivation. However, annual order-processing cost, annual capital cost, and annual setup costs are all variable factors that should be included in the EOQ calculation.

Question 7

Which of the following would most likely be considered a dependent demand item?
A)Bicycle tires used to assemble a bicycle
B)Television (TV)
C)Couch
D)Lawn Mower

Accepted Answer

Bicycle tires used to assemble a bicycle are an example of a dependent demand item because the demand for the tires is directly related to the demand for the bicycles. Without the bicycles, there would be no need for tires. The other items listed (TV, couch, and lawn mower) are examples of independent demand items because their demand is not directly tied to the demand for any other product.

Question 8

The EOQ model with quantity discounts attempts to determine
A)what is the lowest purchasing price.
B)whether to use fixed-quantity or fixed period order policy.
C)how many units should be ordered.
D)what is the shortest lead time.
E)what is the lowest amount of inventory necessary to satisfy a certain service level.

Accepted Answer

The EOQ model with quantity discounts attempts to determine the optimal order quantity at which the total cost (ordering cost + holding cost) is minimized, taking into account the discounted price for purchasing larger quantities. Therefore, the model aims to determine how many units should be ordered.

Question 9

Use this information below to calculate the optimal order quantity:
Annual demand for backpacks is 43,000 units
The cost to place an order is $220
The per unit cost of the item is $60.00
The annual holding rate is 37.5%
Choose the closest answer.
A)920 units
B)250 units
C)710 units
D)830 units

Accepted Answer

The optimal order quantity is 920 units. This can be calculated using the following formula:EOQ = √(2*D*O)/Hwhere:D = annual demandO = ordering costH = holding costPlugging in the given values, we get:EOQ = √(2*43,000*$220)/0.375= 920 units

Question 10

____,such as lubricants for machines,are used in the production process,but do not become parts of the final products.
A)Raw materials
B)Work-in-process
C)Maintenance,repair and operating supplies
D)Finished goods
E)Cycle stock

Accepted Answer

Maintenance, repair, and operating supplies (MRO) are materials used in the production process, but they are not incorporated into the final products. MRO supplies include lubricants, cleaning agents, and other materials used to maintain and repair the equipment used in the manufacturing process. Raw materials (A) are used to create the finished product, work-in-process (B) refers to products that are currently in the process of being manufactured, finished goods (D) are products that are ready to be sold, and cycle stock (E) refers to inventory that is held to satisfy immediate demand.

Question 11

Use the graph below to answer the question(s). 
-In the ABC Inventory Matrix,inventory in area Z suggests
A)under-stocked A and B items.
B)under-stocked B and C items.
C)overstocked A and B items.
D)over-stocked B and C items.
E)inventory matches sales.

Accepted Answer

In the ABC Inventory Matrix, area Z typically indicates items that are over-stocked relative to their demand or sales, particularly for B and C items which are of lower priority or demand compared to A items.

Question 12

Which of the following is not an assumption of the economic order quantity model?
A)Demand is known,constant,and independent.
B)Lead time is known and constant.
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.

Accepted Answer

The Economic Order Quantity (EOQ) model assumes that demand is known and constant, lead time is known and constant, quantity discounts are not considered, and the only variable costs are setup cost and holding cost. It does not assume that production and use can occur simultaneously; this assumption is not part of the EOQ model framework.

Question 13

Figure 7-1
Use the graph below to answer the question(s). 
-Which of the following is TRUE in relation to Figure 7-1?
A)Curve J represents the annual ordering cost,and curve K represents the annual holding cost.
B)A lot size of G has an annual total cost of about C.
C)At lot size H both holding costs and ordering costs exceed the annual total cost.
D)The EOQ is most likely lot size G,and curve L is the annual ordering cost curve.

Accepted Answer

The answer of Figure 7-1
Use the graph below to answer...

Question 14

The cost of a widget is $5,and the carrying rate is 40%;cost of processing an order is $25,annual demand is for 400 widgets,and supply and usage patterns are stable.What is the economic order quantity (EOQ)?
A)5
B)20
C)25
D)100
E)200

Accepted Answer

EOQ formula = sqrt((2DS)/H)
where D = annual demand, S = cost of processing an order, and H = carrying rate.
Plugging in the values, we get:
EOQ = sqrt((2*400*25)/0.4*5) = sqrt(10,000) = 100

Therefore, the best choice is D, with an EOQ of 100, which minimizes the total cost of ordering and carrying inventory.

Question 15

Which one of the following statements regarding the economic order quantity is true?
A)The EOQ model combines several different item orders to the same supplier.
B)If an order quantity is larger than the EOQ,the annual holding cost exceeds the annual ordering cost.
C)The EOQ model assumes a variable demand pattern.
D)When the interest rate drops,both the holding cost and the EOQ decreases.
E)EOQ is used to determine the optimum shipping quantity.

Accepted Answer

The economic order quantity is the order quantity that minimizes the total inventory holding costs and ordering costs. If the order quantity is larger than the EOQ, the annual holding cost will exceed the annual ordering cost, which is not optimal. The other options are incorrect statements about the EOQ.

Question 16

Dependent demand and independent demand items differ in that
I.for any product,all components are dependent-demand items
II.the need for independent-demand items is forecast
III.the need for dependent-demand items is calculated
A)I only
B)I & II only
C)I & III only
D)II & III only
E)I,II & III

Accepted Answer

Dependent demand items are components whose demand is based on the demand for another item, and their need is calculated. Independent demand items are finished goods whose demand is forecasted. All components of a product are dependent-demand items.

Question 17

If your company had an annual purchase cost of items equal to $2,000,000,an annual holding cost of $150,000 and an annual ordering cost of $750,000 this scenario would reveal that:
A)Your fixed lot size was lower than the EOQ
B)Your fixed lot size was equal to the EOQ
C)Your fixed lot size was higher than the EOQ
D)Nothing because there is insufficient information to discern where the EOQ would be.

Accepted Answer

The answer of If your company had an annual purchase...

Question 18

If an item is ordered at its economic order quantity,the annual carrying cost should be:
A)slightly less than the annual ordering cost.
B)equal to the annual ordering cost.
C)twice the annual purchase price.
D)the square root of the annual ordering cost.
E)cannot be determined because there is insufficient information provided.

Accepted Answer

When an item is ordered at its economic order quantity, the annual carrying cost should be equal to the annual ordering cost. This is because the economic order quantity is calculated to find the point where the costs of ordering and carrying inventory are at their lowest. Therefore, the annual carrying cost and the annual ordering cost should be balanced at the economic order quantity.

Question 19

Use the graph below to answer the question(s). 
-In the ABC Inventory Matrix,inventory in area Y suggests
A)under-stocked A and B items.
B)under-stocked B and C items.
C)overstocked A and B items.
D)over-stocked B and C items.
E)inventory matches sales.

Accepted Answer

The answer of Use the graph below to answer the...

Question 20

Which of the following cannot be considered as independent demand items?
A)wholesale and retail merchandise items
B)maintenance,repair,and operating supplies at a manufacturing company
C)maintenance,repair,and operating supplies at a service firm
D)raw material items that become part of the final product at a manufacturing firm
E)service industry items such as hospital supplies or office supplies for law firms

Accepted Answer

Raw material items that become part of the final product at a manufacturing firm are considered dependent demand items, as their demand is dependent on the demand for the final product they are used in. The other options (A, B, C, and E) can be considered independent demand items, as their demand is not directly tied to the demand for any other product or service.

Quiz 7: Inventory Management

Companies hold a supply of inventory for all of the following reasons EXCEPT:

The primary purpose of the basic economic order quantity model is

Which of the following is not an example of an ordering cost for products purchased from a supplier?

Which of the following is a disadvantage of excessive inventory?

Which of the following is a global RFID challenge?

What inventory factor may be omitted from the basic EOQ derivation because it is a constant?

Which of the following would most likely be considered a dependent demand item?

The EOQ model with quantity discounts attempts to determine

Use this information below to calculate the optimal order quantity: Annual demand for backpacks is 43,000 units The cost to place an order is $220 The per unit cost of the item is $60.00 The annual holding rate is 37.5% Choose the closest answer.

____,such as lubricants for machines,are used in the production process,but do not become parts of the final products.

Use the graph below to answer the question(s) . -In the ABC Inventory Matrix,inventory in area Z suggests

Which of the following is not an assumption of the economic order quantity model?

Figure 7-1 Use the graph below to answer the question(s) . -Which of the following is TRUE in relation to Figure 7-1?

The cost of a widget is $5,and the carrying rate is 40%;cost of processing an order is $25,annual demand is for 400 widgets,and supply and usage patterns are stable.What is the economic order quantity (EOQ) ?

Which one of the following statements regarding the economic order quantity is true?

Dependent demand and independent demand items differ in that I.for any product,all components are dependent-demand items II.the need for independent-demand items is forecast III.the need for dependent-demand items is calculated

If your company had an annual purchase cost of items equal to $2,000,000,an annual holding cost of $150,000 and an annual ordering cost of $750,000 this scenario would reveal that:

If an item is ordered at its economic order quantity,the annual carrying cost should be:

Use the graph below to answer the question(s) . -In the ABC Inventory Matrix,inventory in area Y suggests

Which of the following cannot be considered as independent demand items?