IMM 10

For a certain group of items, the cost of carrying inventory and the cost of placing orders is not exactly known but is about the same for all the items. The company has calculated K = 20 for these items. If one item has an annual demand (A) = $10,000 the NEW order quantity should be: 13) A) $2,000. B) $10,000. C) $50,000. D) $20,000. E) none of the above

A) $2,000.

If a purchase discount is taken: I. there is a saving in purchase cost. II. ordering costs are reduced. III. carrying costs are increased. IV. there is not necessarily a net saving. A) I, II, II, and IV are true. B) Only II and IV are true. C) Only III and IV are true. D) Only II and III are true. E) Only II, III and IV are true.

A) I, II, II, and IV are true.

Which of the following statements is true? I. The EOQ should be used with lumpy demand. II. Transportation cost should be included in the cost of ordering. III. Anticipation inventory should be built based on capacity and future demand. A) II and III only are true. B) I and II only are true. C) I and III only are true. D) I, II, III and IV are true. E) None of the above is true.

A) II and III only are true.

Which of the following statements is correct? A) If stock is not received all at once into inventory, then EOQ formula can be modified and used. B) Inventory levels can be lowered by raising the order quantity. C) Quantity discounts will not change the total inventory costs of the item. D) You must know the ordering cost to use the EOQ concept. E) None of the above is correct

A) If stock is not received all at once into inventory, then EOQ formula can be modified and used.

K, the constant used for lot sizing, is calculated as the: A) sum of the square roots of demand divided by the number of orders per year. B) order point minus safety stock. C) reciprocal of order quantity times the economic order quantity. D) standard deviation of the demand divided by the square root of demand. E) annual demand divided by the order quantity.

A) sum of the square roots of demand divided by the number of orders per year.

The EOQ for an item is 5500 units and the annual demand is 78,000 units. What is the period order quantity? A) 14.18 B) 3.67 C) 0.27 D) 4 E) cannot be determined from the given data

B) 3.67

Which of the following is NOT an assumption on which the economic order quantity (EOQ) is based? 1) A) Order preparation costs, inventory carrying costs and lead times are constant and known. B) The item is produced continuously. C) Replacement occurs all at once. D) Demand is relatively constant and known. E) All of the above are true assumptions.

B) The item is produced continuously.

While working a simple EOQ problem, you notice that, with a certain lot size, the annual ordering cost is exactly the same value as the annual inventory carrying cost. Which of the following is true? A) Total cost is at its maximum. B) The lot size is the economic order quantity. C) The annual carrying cost will decrease if the order quantity is increased. D) all of the above E) none of the above; the phenomenon is merely a coincidence

B) The lot size is the economic order quantity.

The period order quantity: A) can only be applied to continuous demand. B) is based on the same assumptions as the EOQ model. C) works like a quantity discount. D) orders a constant amount for a set number of periods. E) orders the same quantity each period.

B) is based on the same assumptions as the EOQ model.

If the economic order quantity is to be calculated in DOLLARS, then: A) carrying costs are stated in dollars per unit. B) the annual demand must be stated in dollars. C) ordering costs MUST be stated on a per UNIT basis. D) All of the above are true. E) None of the above is true.

B) the annual demand must be stated in dollars.

A firm uses $20,000 of an item per year. The carrying cost is 25%, the cost of ordering is $10 and the order quantity is $1,000. The annual total cost of carrying plus ordering would be: A) $500. B) $5,000. C) $816. D) $2,500. E) none of the above

C) $816.

For a particular item the usage is 2000 units per year, the ordering cost is $10, the inventory carrying cost is 20% and the unit cost is $5. The economic order quantity is: A) 4000 units. B) 400 units. C) 200 units. D) 2000 units. E) 20 units

C) 200 units.

The period order quantity is equal to: A) annual demand divided by EOQ. B) the sum of the carrying costs divided by cost per unit. C) EOQ divided by average period demand. D) the part period cost times average inventory. E) the carrying cost up, to but not exceeding, the ordering cost.

C) EOQ divided by average period demand.

Quantity discounts: A) persuade the buyer to buy more often. B) make buyers order more than is economical. C) can be a good decision if the total annual costs are reduced. D) always advantage the seller at a cost to the buyer. E) decrease the annual carrying costs but increase the ordering cost.

C) can be a good decision if the total annual costs are reduced.

Quantity discounts cause companies to: A) always save money. B) order less at a time. C) increase their inventory. D) order sooner. E) increase ordering costs.

C) increase their inventory.

In the simple EOQ model, annual inventory carrying costs and annual ordering costs vary: A) according to the time of year. B) in an unknown manner. C) with the order quantity. D) with seasonally adjusted demand. E) They do not vary in any way.

C) with the order quantit

In developing the standard economic order quantity formula, the following assumption(s) is (are) made: A) Demand for the item is relatively uniform. B) Lead time is constant. C) Replenishment is in lots or batches that arrive at once. D) All of the above are assumed. E) None of the above is assumed.

D) All of the above are assumed.

A supplier offers a quantity discount. Which of the following will influence the decision to accept the discount or not? A) cost of placing one order B) purchase cost C) cost of carrying inventory D) All of the above are relevant. E) None of the above is relevant.

D) All of the above are relevant.

Which of the following is NOT true regarding period order quantity method (POQ) of lot sizing? A) The time interval of inventory coverage is constant. B) POQ is better suited to lumpy demand than EOQ. C) POQ and EOQ will try to order the same number of times per year. D) The order quantity is constant. E) POQ is derived directly from the EOQ.

D) The order quantity is constant

Which of the following techniques balances the cost of ordering with the cost of carrying inventory? A) POQ B) EOQ C) the constant K D) all of the above

D) all of the above

Assuming the cost per order is constant, increasing the order quantity will cause annual ordering costs to: A) increase at a decreasing rate. B) increase. C) remain the same. D) decrease. E) cannot be determined

D) decrease

If the order quantity is increased, the annual cost of carrying inventory will: A) decrease. B) not be affected. C) remain the same. D) increase. E) none of the above

D) increase.

The letter "K" used in lot sizing makes the order quantities: A) balance the safety stock of items with demand. B) maintain the current inventory level while decreasing the number of orders. C) increase the average inventory. D) decrease the average inventory by gradually ordering more often. E) order the big items more often and the low volume items less often.

E) order the big items more often and the low volume items less often.

In determining the economic order quantity (EOQ), the following costs are considered: A) costs of a stockout and inventory holding costs. B) costs of a stockout and ordering costs. C) ordering costs and costs of changing production levels. D) inventory holding costs and costs of changing production levels. E) ordering costs and inventory carrying costs.

E) ordering costs and inventory carrying costs.