Chapter 12 Inventory Management

A disadvantage of the fixed-period inventory system is that: Select one: a. it involves higher ordering costs than the fixed quantity inventory system. b. additional inventory records are required. c. the average inventory level is decreased. d. since there is no count of inventory during the review period, a stockout is possible. e. orders usually are for larger quantities.

The fixed-period inventory system requires more safety stock than a fixed-quantity system because: Select one: a. a stockout can occur during the review period as well as during the lead time. b. this model is used for products that have large standard deviations of demand. c. this model is used for products that require very high service levels. d. replenishment is not instantaneous. e. setup costs and holding costs are large.

Which of the following statements regarding the reorder point is TRUE? Select one: a. The reorder point is that quantity that triggers an action to restock an item. b. There is a reorder point even if lead time and demand during lead time are constant. c. The reorder point is larger than d × L if safety stock is present. d. A shorter lead time implies a smaller reorder point. e. All of these are true.

ABC analysis divides on-hand inventory into three classes, generally based upon which of the following? Select one: a. item quality b. unit price c. the number of units on hand d. annual demand e. annual dollar volume

What is the difference between P and Q inventory systems? Select one: a. order size b. order spacing c. maximum service level d. lead time length e. order size and order spacing

A product whose EOQ is 400 units experiences a 50% increase in demand. The new EOQ is: Select one: a. unchanged. b. increased by less than 50%. c. increased by 50%. d. increased by more than 50%. e. cannot be determined

Work-in-process inventory is devoted to maintenance, repair, and operating materials. Select one: True False

Cycle counting: Select one: 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.

Which of the following is NOT one of the four main types of inventory? Select one: a. raw material inventory b. work-in-process inventory c. maintenance/repair/operating supply inventory d. safety stock inventory e. finished-goods inventory

If daily demand is normally distributed with a mean of 15 and standard deviation of 5, and lead time is constant at 4 days, a 90 percent service level will require how much safety stock? Select one: a. 7 units b. 10 units c. 13 units d. 16 units e. 26 units

Which of the following statements about the basic EOQ model is FALSE? Select one: 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. c. If the ordering cost were to increase, the EOQ would rise. d. If annual demand were to double, the EOQ would also double. e. All of these statements are true.

Which category of inventory holding costs has a much higher percentage than average for rapid-change industries such as PCs and cell phones? Select one: a. housing costs b. material handling costs c. labor cost d. investment costs e. pilferage, scrap, and obsolescence

The assumptions of the production order quantity model are met in a situation where annual demand is 3650 units, setup cost is $50, holding cost is $12 per unit per year, the daily demand rate is 10 and the daily production rate is 100. What is the production order quantity for this problem? Select one: a. 139 b. 174 c. 184 d. 365 e. 548

Which of the following items is mostly likely managed using a single-period order model? Select one: a. Christmas trees b. canned food at the grocery store c. automobiles at a dealership d. metal for a manufacturing process e. gas sold to a gas station

The proper quantity of safety stock is typically determined by: Select one: a. using a single-period model. b. carrying sufficient safety stock so as to eliminate all stockouts. c. multiplying the EOQ by the desired service level. d. setting the level of safety stock so that a given stockout risk is not exceeded. e. minimizing total costs.

In the simple EOQ model, if the carrying cost were to double, the EOQ would also double. Select one: True False

In the basic EOQ model, if D = 6000 per year, S = $100, and holding cost = $5 per unit per month, what is the economic order quantity? Select one: a. 24 b. 100 c. 141 d. 490 e. 600

Service level is: Select one: a. the probability of stocking out. b. the probability of not stocking out. c. something that should be minimized in retail. d. calculated as the cost of a shortage divided by (the cost of shortage + the cost of overage) for single-period models. e. the probability of not stocking out and calculated as the cost of a shortage divided by (the cost of shortage + the cost of overage) for single-period models

bakery wants to determine how many trays of doughnuts it should prepare each day. Demand is normal with a mean of 5 trays and standard deviation of 1 tray. If the owner wants a service level of at least 95%, how many trays should he prepare (rounded to the nearest whole tray)? Assume doughnuts have no salvage value after the day is complete. Select one: a. 5 b. 4 c. 6 d. 7 e. unable to determine with this information

All EXCEPT which of the following statements about ABC analysis are true? Select one: 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.

ABC analysis classifies inventoried items into three groups, usually based on annual units or quantities used. Select one: True False

Which category of inventory holding costs has a much higher percentage than average for rapid-change industries such as PCs and cell phones? Select one: a. housing costs b. material handling costs c. labor cost d. investment costs e. pilferage, scrap, and obsolescence

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. Select one: 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.

In the simple EOQ model, if annual demand were to increase, the EOQ would increase proportionately. Select one: True False

The reorder point is the inventory level at which action is taken to replenish the stocked item. Select one: True False