Chapter 8

Independent demand items are: A. derived demand and determined by the production schedule. B. determined directly by customer orders. C. determined by the production schedule. D. derived demand. E. derived demand and determined directly by customer orders.

B. determined directly by customer orders.

A company manufacturers 1,200 cylinders per day, each requiring a pressure gauge. the purchase price of the pressure gauge is $3.20. the company controller estimated annual holding costs at 25% per year, well the cost of placing an order was estimated at $55.00. Assuming that the plant operates 45 weeks per year, the EOQ for the pressure gauge is: A. 3,000 units B. 2,929 units C. 2,872 units D. 2,725 units E. 1,200 units

D. 2,725 units Annual Demand = Weekly Demand + # of operating weeks = 1,200 * 45 = 54,000 units Order Cost = $55 Holding Cost = 25% of $3.20 = $0.80 √[(2 * 54,000 * 55) / 0.8] = √(5,940,000 / 0.8) = √7,425,000

Decoupling inventories are used to: A. Avoid an anticipated change in supply, demand, or price. B. protect against disruptions due to unplanned events. C. reduce the number of setups. D. accommodate different rates or patterns of demand. E. avoid an anticipated change in supply, demand, or price, and to reduce the number of setups.

D. accommodate different rates or patterns of demand.

Strategies for managing "C" items in ABC analysis are: A. Review inventory levels frequently. B. carrying inventories. C. concentrating requirements with one or a few suppliers. D. review inventory levels frequently and carrying inventories. E. carrying inventories and concentrating requirements with one or a few suppliers.

E. carrying inventories and concentrating requirements with one or a few suppliers.

In fixed-period inventory models, a fixed economic order quantity is ordered when the reorder point is reached. True/False

False

Usage of independent demand items is determined by the production schedule. True/False

False

Holding extra inventory to protect against a supply disruption from a supplier strike is an example of buffer inventory. True/False

True

Inventories can be classified by form and function. True/False

True

JIT requires frequent deliveries of relatively small quantities in compliance with quality standards. True/False

True

The "bullwhip effect" is a term that refers to the buildup of inventory in a supply chain resulting from fluctuations in demand. True/False

True