12

The fixed-period inventory system requires more safety stock than a fixed-quantity system because:

a stockout can occur during the review period as well as during the lead time.

If demand is not uniform and constant, then stockout risks can be controlled by:

adding safety stock.

Among the advantages of cycle counting is that it:

allows more rapid identification of errors and consequent remedial action than is possible with annual physical inventory.

The purpose of safety stock is to:

control the likelihood of a stockout due to variable demand and/or lead time.

Cycle counting:

eliminates annual inventory adjustments

Q is to ________ systems as P is to ________ systems.

fixed quantity, fixed period

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

housing costs material handling costs investment costs pilferage, scrap, and obsolescence E) All of the above are elements of inventory holding costs.

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

increase by about 41%.

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

increased by less than 50%.

The main trait of a single-period model is that:

inventory has limited value after a certain period of time.

When quantity discounts are allowed, the cost-minimizing order quantity:

minimizes the sum of holding, ordering, and product costs.

Demand for dishwasher water pumps is 8 per day. The standard deviation of demand is 3 per day, and the order lead time is four days. The service level is 95%. What should the reorder point be?

more than 40

Which of the following is a requirement of Q systems?

perpetual inventory system

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

pilferage, scrap, and obsolescence

Which of the following should be higher in P systems than Q systems?

safety stock

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

safety stock inventory

The proper quantity of safety stock is typically determined by:

setting the level of safety stock so that a given stockout risk is not exceeded.

Service level is:

the probability of not stocking out. calculated as the cost of a shortage divided by (the cost of shortage + the cost of overage) for single-period models. E) B and D

ABC analysis is based upon the principle that:

there are usually a few critical items, and many items that are less critical.

An advantage of the fixed-period inventory system is that:

there is no physical count of inventory items when an item is withdrawn.

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

timing of orders and order quantity

Which of the following is a function of inventory?

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

Most inventory models attempt to minimize:

total inventory-based costs.

If the standard deviation of demand is six per week, demand is 50 per week, and the desired service level is 95%, approximately what is the statistical safety stock?

Cannot be determined without lead time data.

Which of the following items is mostly likely managed using a single-period order model?

Christmas trees

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

Effective control of all goods leaving the facility is one applicable technique.

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

FALSE

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

FALSE

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

FALSE

An inventory decision rule states, "When the inventory level goes down to 14 gearboxes, 100 gearboxes will be ordered." Which of the following statements is TRUE?

Fourteen is the reorder point, and 100 is the order quantity.

Which of the following statements regarding the production order quantity model is TRUE?

It relaxes the assumption that all the order quantity is received at one time.

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

TRUE

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

TRUE

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

TRUE

Which of the following statements about quantity discounts is FALSE?

The larger the annual demand, the less attractive a discount schedule will be.

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 $600. What is the inventory carrying cost per unit per year for this item?

$3.00

Suppose that papers for a newspaper stand cost $0.40 and sell for $0.80. They currently have no salvage value. If the stand owner is able to find an outlet that would provide a salvage value of $0.10, what would be the increase in service level?

.07

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?

13 units

A specific product has demand during lead time of 100 units, with a standard deviation during lead time of 25 units. What safety stock (approximately) provides a 95% service level?

41

If daily demand is constant at 10 units per day, and lead time averages 12 days with a standard deviation of 3 days, 95 percent service requires how much safety stock?

49 units

A 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.

7

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

$800

Which of the following statements about ABC analysis is FALSE?

ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.

What is a fixed-period system?

It is a system in which inventory orders are made at regular time intervals.

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

TRUE

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

The company was founded as, and still is, a "virtual" retailer with no inventory.

Which of the following statements regarding the reorder point is TRUE?

The reorder point is that quantity that triggers an action to restock an item. There is a reorder point even if lead time and demand during lead time are constant. The reorder point is larger than d × L if safety stock is present. A shorter lead time implies a smaller reorder point. E) All of the above are true.

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

annual dollar volume

A disadvantage of the fixed-period inventory system is that:

since there is no count of inventory during the review period, a stockout is possible.

A local club is selling Christmas trees and deciding how many to stock for the month of December. If demand is normally distributed with a mean of 100 and standard deviation of 20, trees have no salvage value at the end of the month, trees cost $20, and trees sell for $50 what is the service level?

.60

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

110

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?

141

In a safety stock problem where both demand and lead time are variable, demand averages 150 units per day with a daily standard deviation of 16, and lead time averages 5 days with a standard deviation of 1 day. What is the standard deviation of demand during lead time?

154 units

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?

184

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:

200 units per order.

A production order quantity problem has a daily demand rate = 10 and a daily production rate = 50. The production order quantity for this problem is approximately 612 units. What is the average inventory for this problem?

245

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

ABC analysis suggests that all items require the same high degree of control.

Which of these statements about the production order quantity model is FALSE?

All else equal, the smaller the ratio of demand rate to production rate, the larger is the production order quantity.

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

FALSE

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

FALSE

In the quantity discount model, the cost of acquiring goods (product cost) is not a factor in determining lot size.

FALSE

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

FALSE

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

FALSE

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

FALSE

Safety stock in inventory systems depends only on the average demand during the lead time.

FALSE

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

FALSE

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

FALSE

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

FALSE

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

If annual demand were to double, the EOQ would also double.

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

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

Describe the difference between a fixed-quantity and a fixed-period inventory system?

In a fixed-quantity inventory system, when the quantity on hand reaches the reorder point, an order is placed for the specified quantity. In a fixed-period inventory system, an order is placed at the end of the review period. The quantity ordered is that needed to bring inventory up to a specified level.

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

TRUE

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

TRUE

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

TRUE

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

TRUE

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

TRUE

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

TRUE

Service level is the complement of the probability of a stockout.

TRUE

The demand for automobiles would be considered as independent demand.

TRUE

The fixed-period inventory model can have a stockout during the review period as well as during the lead time, which is why fixed-period systems require more safety stock than fixed-quantity systems.

TRUE

A(n) ________ system triggers inventory ordering on a uniform time frequency.

fixed-period (or P)

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

one-third as large

What is the difference between P and Q inventory systems?

order size order spacing E) A and B

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

to minimize holding costs