Question 1

Considering the EOQ model,a reduction in ordering costs justifies reducing the lot size ordered.

Accepted Answer

According to the EOQ model, a reduction in ordering costs will result in a decrease in the total cost of inventory, which justifies ordering smaller lot sizes more frequently. This is because the cost of placing an order decreases, making it less expensive to order more frequently in smaller quantities. Therefore, the reduction in ordering costs justifies reducing the lot size ordered.

Question 2

The EOQ is the smallest lot size that a supplier will allow a customer to order.

Accepted Answer

The EOQ (economic order quantity) is the order quantity that minimizes the total inventory holding costs and ordering costs. It is not the smallest lot size that a supplier will allow a customer to order.

Question 3

In an ABC analysis,class ________ SKUs,which typically make up about ________ % of the SKUs,account for only about 15% of the dollar usage.

Accepted Answer

The answer of In an ABC analysis,class ________ SKUs,which typically...

Question 4

Which one of the following statements concerning the economic order quantity (EOQ)model is TRUE?

Accepted Answer

The EOQ model takes into account both the ordering cost and holding cost of inventory. Holding cost refers to the cost of holding inventory in storage, including expenses such as rent, insurance, and security. As the holding cost decreases, it becomes less expensive to hold inventory, and the EOQ increases. Therefore, statement C is true. Statements A and B are false. An increase in holding cost would decrease the EOQ because it makes holding inventory more expensive, and a decrease in demand would also decrease the EOQ because less inventory is needed to meet demand.

Question 5

EOQ should be used if you use a make-to-order strategy and the customer specifies that the entire order be delivered in one shipment.

Accepted Answer

EOQ (Economic Order Quantity) is typically used in a make-to-stock strategy to determine the optimal order quantity and minimize inventory costs. Make-to-order strategies involve producing goods only in response to specific customer orders, and the production and delivery schedule is tailored to the customer's requirements. Therefore, EOQ is not applicable in this scenario, and other inventory management strategies and tools would need to be used.

Question 6

The Lemming Company implements an aggressive marketing campaign and effectively doubles the annual demand for Model 13s.Their total annual holding cost should:

Accepted Answer

The answer of The Lemming Company implements an aggressive marketing...

Question 7

Considering the EOQ model,smaller lots are justified when holding costs are decreased.

Accepted Answer

In the EOQ model, smaller lots are justified when ordering costs are decreased, not holding costs. Lower holding costs would actually justify larger lots since it becomes cheaper to hold inventory.

Question 8

Sensitivity analysis on the economic order quantity (EOQ)formula can help the operations manager answer several questions on how to manage inventories.Which one of the following questions is NOT answered by EOQ sensitivity analysis?

Accepted Answer

EOQ sensitivity analysis does not directly address changes in lot sizes due to supply and lead-time uncertainty, as EOQ primarily focuses on balancing ordering and holding costs based on demand, holding cost, and setup cost.

Question 9

A company operating under an EOQ policy enjoys rising annual demand for their products for three consecutive years.During this time their holding cost and ordering cost remain constant.Which statement is BEST?

Accepted Answer

As demand increases, the EOQ formula indicates that the order quantity will rise. However, with higher demand, the time between orders will decrease because more frequent orders are needed to meet the increased demand.

Question 10

What is ABC analysis and how does it work?

Accepted Answer

The answer of What is ABC analysis and how does...

Question 11

Vilas County Hospital consumed 400 boxes of bandages per week last year.The price of bandages was $80 per box,and the hospital operates 52 weeks per year.The cost of processing an order was $64,and the cost of holding one box throughout a full year was 20% of the value of the material. Last year the hospital ordered bandages,on average,once every two weeks,each time ordering 800 boxes.What extra cost did the hospital incur that could have been avoided if the EOQ concept had been applied?

Accepted Answer

The answer of Vilas County Hospital consumed 400 boxes of...

Question 12

Inventory manager George Costanza knows too well that shrinkage occurs so he goes to the stock room every day to do a spot check of a few pre-selected items,physically counting them to verify that his count agrees with the number indicated by their computerized inventory system.This method of inventory control is known as ________.

Accepted Answer

The answer of Inventory manager George Costanza knows too well...

Question 13

EOQ should be used if you follow a make-to-stock strategy and the item has relatively stable demand.

Accepted Answer

EOQ (Economic Order Quantity) is an inventory management tool that helps in determining the optimal order quantity to minimize inventory holding costs and ordering costs. It is suitable for companies that follow a make-to-stock strategy as it assumes that the demand for the item is stable and predictable. Therefore, option A is correct.

Question 14

The Lemma Company manufactures and sells 10 products.Ways have been found to cut both the setup and inventory holding costs in half.What effect will this have on the economic order quantities of the 10 products?

Accepted Answer

The answer of The Lemma Company manufactures and sells 10...

Question 15

You have taken a job in industry and are facing your first ordering decision.As you prepare to place the order,you remember your instructor teaching you that you wouldn't use the EOQ formula if:

Accepted Answer

The EOQ (economic order quantity) formula assumes that there are no constraints on the order size. Therefore, if the order size is constrained by capacity limitations such as the number or size of the delivery trucks, the EOQ model may need to be modified or another method of order quantity determination may need to be used. Options A, B, and D all describe situations where the EOQ formula can be used effectively.

Question 16

In an ABC analysis,class ________ SKUs,which typically make up ________ % of the SKUs,account for only about 5% of the dollar usage.

Accepted Answer

The answer of In an ABC analysis,class ________ SKUs,which typically...

Question 17

Which one of the following statements regarding the economic order quantity (EOQ)is TRUE?

Accepted Answer

The EOQ model calculates the optimal order quantity that minimizes the total cost of holding inventory and ordering inventory. If the order quantity is larger than the EOQ, the annual holding cost for cycle inventory will exceed the annual ordering cost, making it more expensive to hold excess inventory than to order inventory more frequently. Therefore, the statement in option B is true. The other options are incorrect.

Question 18

Which one of the following statements concerning the economic order quantity (EOQ)is TRUE?

Accepted Answer

An increase in demand will increase the EOQ because the EOQ formula includes demand as a factor, and higher demand leads to larger optimal order quantities to minimize total costs.

Question 19

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

Accepted Answer

The EOQ model assumes constant prices and does not account for quantity discounts, which means it does not consider price reductions for ordering in larger quantities.

Question 20

As the annual demand increases,the EOQ also increases.

Accepted Answer

The EOQ (economic order quantity) is directly proportional to the square root of the annual demand, meaning that as the annual demand increases, the EOQ also increases.

Quiz 9: Inventory Management

Considering the EOQ model,a reduction in ordering costs justifies reducing the lot size ordered.

The EOQ is the smallest lot size that a supplier will allow a customer to order.

In an ABC analysis,class SKUs,which typically make up about % of the SKUs,account for only about 15% of the dollar usage.

Which one of the following statements concerning the economic order quantity (EOQ) model is TRUE?