Final Exam Chapter 13

Make-to-order systems are effective in environments with the following characteristics EXCEPT: A. critical ratio is high. B. critical ratio is low. C. customers prefer variety. D. customers are willing to wait.

A

Maximum profit is computed as the product of ___________ and ___________. A. expected demand, profit per unit sold B. actual demand, unit selling price C. expected demand, unit selling price D. actual demand, profit per unit sold

A

Store A uses the newsvendor model to manage its inventory. Demand for its product is normally distributed with a mean of 500 and a standard deviation of 300. Store A purchases the product for $10 each unit and sells each for $20. Inventory is salvaged for $5. Which of the following statements is TRUE if Store A increases its in-stock probability from 98% to 99%? A. Expected inventory increases. B. Order quantity remains the same. C. Order quantity decreases. D. Expected inventory decreases.

A

Store A uses the newsvendor model to manage its inventory. Demand for its product is normally distributed with a mean of 500 and a standard deviation of 300. Store A purchases the product for $10 each unit and sells each for $20. Inventory is salvaged for $5. Which of the following statements is TRUE if Store A increases its in-stock probability from 98% to 99%? A. Expected profit decreases. B. Order quantity decreases. C. Order quantity remains unchanged. D. Expected profit increases.

A

The difference between the __________ and _____________ is the mismatch costs in the newsvendor model. A. maximum profit, expected profit B. maximum profit, expected sales C. minimum profit, expected profit D. minimum profit, expected sales

A

Two events are __________ if when the outcome of one event is high, then the outcome of the other event is also high. A. positively correlated B. uncorrelated C. negatively correlated D. independent

A

Which of the following statements is FALSE regarding a make-to-order system? A. It is the opposite of mass customization. B. The production of a unit begins only when its demand is known. C. It does not have leftover inventory. D. It helps to reduce mismatch costs.

A

Coefficient of variation is the ratio of the _______ to ___________. A. maximum profit, expected demand B. standard deviation of demand, expected demand C. maximum profit, expected profit D. standard deviation of demand, expected profit

B

Expected profit ________ as the coefficient of variation _________. A. increases, stays the same B. decreases, increases C. decreases, decreases D. stays the same, increases

B

Mismatch costs are the sum of the costs of _________ and ___________. A. stockouts, work-in-process inventory B. stockouts, leftover inventory C. overstock, leftover inventory D. overstock, work-in-process inventory

B

Product pooling _________ demand across correlated products to __________ coefficient of variation, thereby reducing mismatch costs. A. aggregates, increase B. aggregates, decrease C. segregates, increase D. segregates, decrease

B

The ________ function provides the probability that an outcome is a certain level or ________. A. density, lower B. distribution, lower C. density, higher D. distribution, higher

B

The _________ function returns the ____________ a given outcome occurs. A. density, frequency B. density, probability C. distribution, probability D. distribution, frequency

B

The capacity that allows a firm to react to changes in its ____________ is called __________ capacity. A. demand forecast, proactive B. demand forecast, reactive C. supply forecast, proactive D. supply forecast, reactive

B

The factors that influence mismatch costs are ___________ and ____________. A. critical ratio, coefficient of correlation of demand B. critical ratio, coefficient of variation of demand C. overage cost, coefficient of correlation of demand D. overage cost, coefficient of variation of demand

B

Which of the following is NOT a performance measure of the newsvendor model that you learned in this chapter? A. Expected sales B. Expected supply C. In-stock probability D. Stockout probability

B

Which of the following is TRUE about correlation? A. Correlation has a value in between zero and one. B. Two independent events will have a zero correlation. C. Product pooling is most effective if the correlation between two products is one. D. A product with a high demand uncertainty has a high correlation.

B

Which of the following statements is FALSE regarding in-stock probability? A. In-stock probability is equal to the critical ratio when expected profit is maximized. B. In-stock probability is greater than the critical ratio when expected profit is maximized. C. In-stock probability is a measure of customer service. D. In-stock probability has a value between 0 and 1.

B

A wide and short density function has a large ____________ relative to the _________. A. mean, standard deviation B. mean, outcome C. standard deviation, mean D. standard deviation, outcome

C

Expected profit _________ as the critical ratio ____________. A. increases, stays the same B. decreases, increases C. decreases, decreases D. stays the same, increases

C

Product pooling is more effective with products whose demands are __________. A. positively correlated B. uncorrelated C. negatively correlated D. known in advance

C

The _____________ is the cost of ordering one unit _____________. A. underage cost, exactly B. overage cost, exactly C. underage cost, too few D. overage cost, too few

C

The capability to respond to updated _____________ information is called __________ response. A. supply, slow B. supply, quick C. demand, quick D. demand, slow

C

The inputs to the newsvendor model include all of the following except: A. underage cost. B. overage cost. C. fixed cost. D. demand forecast.

C

Which of the following statement is TRUE regarding the optimal order quantity that maximizes expected profit? A. It always is equal to the mean of the demand distribution. B. It is a balance between the salvage value and the underage cost. C. It is a balance between the underage cost and overage cost. D. More should be ordered when the overage cost exceeds the underage cost.

C

Which of the following statements is TRUE regarding the coefficient of variation of demand? A. It is an absolute measure of demand uncertainty. B. Its value is always between -1 to 1. C. Its value is always greater than or equal to 0. D. Its value is always between 0 and 1.

C

____________ is an effective strategy to manage mismatch costs by increasing the ____________ of a firm's production process. A. Quick response, variability B. Pooling, variability C. Quick response, flexibility D. Pooling, flexibility

C

The _____________ is the cost of ordering one unit _____________. A. underage cost, exactly B. overage cost, exactly C. underage cost, too many D. overage cost, too many

D

The relative consequence of mismatch costs in the newsvendor model is small if demand uncertainty is ____________ or critical ratio is ______________. A. high, high B. high, low C. low, low D. low, high

D

Which of the following is NOT a way to manage a newsvendor product that has substantial mismatch costs? A. Increase underage costs relative to overage costs B. Reduce demand uncertainty C. Pool similar products D. Increase product variety

D

__________ is a statistical measure of the interaction between two uncertain events. A. Variation B. Range C. Standard deviation D. Correlation

D

T/F Expected profit is a direct measure of how well a company serves its customers.

F

T/F The in-stock probability cannot be greater than the critical ratio.

F

T/F The optimal order quantity that maximizes expected profit is always equal to the mean of the demand distribution.

F

T/F A critical ratio of 0.8 means there is an 80% chance that demand is less than or equal to the optimal order quantity.

T

T/F A make-to-order system is more suitable if leftover inventory is expensive for the product.

T

T/F A newsvendor earns a high percentage of the maximum profit if its critical ratio is close to one.

T