MGMT Chapter 12 Test 4

In ABC analysis, which of the following items typically comprise 60 to 80 percent of total dollar usage but only 10 to 30 percent of the items?

A

Which is NOT a feature of the periodic review system?

The order quantity, Q, is always fixed

Two fundamental inventory decisions are: when to order and how much to order. Which of the following statement is TRUE about fixed-quantity (FQS) and fixed-period (FPS) inventory systems?

an FPS must cover a time period of T + L to cover the risk of a stockout

A fixed-period (FPS) inventory system:

chooses a replenishment level (M) which includes the demand during the rewview period and lead time, plus any safety stock

In ABC inventory analysis, which of the following is TRUE of class A items?

class A items account for 5 to 15 percent of the total dollar value

In ABC inventory analysis, which of the following is TRUE of class C items?

class C items makeup a lower percentage of total dollar value than either class A or class B

In a fixed order quantity (FOQ) system, which of the following is TRUE when interest rates increase and all other costs remain the same?

cycle inventory decreases

Which of the following is NOT a key assumption underlining the classic economic order quantity (EOQ) model?

demand is assumed to stochastic

Which of the following statements is TRUE?

dependent demand is directly related to the demand of other stock-keeping units (SKUs) and can be calculated without needing to be forecasted

Demand that varies over time is called _____ demand.

dynamic

"C" items are the critical few that must be closely managed in an inventory system.

false

A stock-keeping unit is the same no matter at which location the item is found.

false

Because of demanding customers, organizations must always maintain a 100 percent service level.

false

Because the fixed-quantity system orders the same amount each time, time between orders will be constant, even with variable demand

false

Costs associated with maintaining storage facilities such as gas and electricity, taxes, and insurance are associated with fixed ordering costs.

false

Dependent demand, unlike independent demand, needs to be forecasted.

false

In a single-period inventory situation, the only inventory decision is when to trigger an order.

false

Inventory management does not involve supplies and replacement parts

false

Inventory position refers to the physical quantity of items on hand in an inventory system

false

Inventory-holding costs are easily measured by accounting departments

false

Lead time is the time it takes to prepare an order for shipping to a customer.

false

Opportunity cost of capital is an example of ordering cost.

false

Setup costs depend on the number of items manufactured

false

Stochastic demand inventory models are easier to analyze and solve than deterministic models.

false

The economic order quantity (EOQ) model follows variable lead time

false

When a customer is unwilling to wait for an item that is not in stock and purchases the item elsewhere, a backorder has occurred.

false

Work-in-process inventory is completed products ready for distribution or sale to customers.

false

Which of the following statements is TRUE? a. The level of safety stock maintained decreases when the desired cycle service level increases. b. The level of safety stock maintained decreases when the standard deviation of demand during lead time increases. c. In a fixed-period inventory system, the value of Q is kept the same from one cycle to another. d. In a fixed-order-quantity system, the reorder point is the average demand during the lead time, plus the additional safety stock when demand is uncertain.

in a fixed-order quantity system, the reorder point is the average demand during the lead time, plus the additional safety stock when demand is uncertain

Inventory position is computed using all the following EXCEPT:

lead-time demand

Backorders:

may occur as a result of a stockout

Independent demand:

needs to be forecasted

Average inventory in the economic order quantity (EOQ) model is defined as:

one-half of the order quantity

Which of the following is NOT a component of holding cost? a. Tax b. Insurance c. Material handling d. Order processing

order processing

Costs associated with configuring tools, equipment, and machines within a factory to produce an item are components of _____ costs.

ordering

Additional inventory that is kept over and above the average amount required to meet demand is called _____ inventory.

safety stock

Costs associated with backordering products are called _____ costs.

shortage

Demand that is stable over time is called _____ demand.

static

Demand that incorporates uncertainty is called_____ demand

stochastic

Which of the following statements is NOT TRUE?

stock-keeping unit (SKU) is a single item or asset stored at multiple locations

A _____ is defined as the inability to satisfy the demand for an item

stockout

Which of the following statements is TRUE? a. Fixed costs associated with any ordering are relevant. b. Sunk costs associated with any ordering are irrelevant. c. Variable costs associated with inventory holding are irrelevant. d. Variable costs associated with ordering are irrelevant.

sunk costs associated with any ordering are irrelevant

Which of the following statements concerning the economic order quantity (EOQ) model is NOT TRUE when the unit holding cost increases?

the economic order quantity will decrease

Which of the following statements is NOT TRUE regarding the fixed-period system (FPS)?

the optimal replenishment level includes the demand during the review period, plus any desired safety stock

In a fixed-quantity system (FQS), as the reorder point increases:

the safety stock increases

Which of the following is NOT TRUE regarding inventory management?

the two fundamental inventory decisions are: where to order and what to order

"A" items typically comprise a high percentage of total dollar usage but a low percentage of unit volume.

true

Airline flights to ski areas near Denver, Colorado, probably have different means and variances throughout the year. This is an example of dynamic demand.

true

An airline seat is an example of an asset held for future use or sale.

true

Call center phone lines are examples of inventory in service organizations.

true

Deterministic demand always remains stable over time and does not fluctuate.

true

Finished-goods inventory consists of completed products that are ready for sale.

true

In a fixed quantity inventory system with certain demand, the reorder point is chosen to be the average demand during the lead time.

true

In general, total ordering costs are equal to total inventory-holding cost for the optimal solution to the economic order quantity (EOQ) model.

true

In the fixed-period system, managers must make two key decisions: the time interval between reviews and the replenishment level

true

Larger orders result in higher total holding cost but lower total ordering cost.

true

Many practical inventory situations include backorders and quantity discounts.

true

Marketing and operations generally prefer high inventory levels, while finance would prefer small inventories.

true

Radio-frequency identification (RFID) tags are used to track stock-keeping units in supply chains.

true

Safety stock inventory is an additional planned on-hand inventory that acts as a buffer to reduce the risk of a stockout

true

The decision of how many fruit baskets to make for the holiday season would be analyzed using a single-period inventory model

true

_____ inventory acts as a buffer between workstations in flow shops or departments in job shops to enable the operating process to continue.

work-in-process

_____ inventory consists of partially completed products in various stages of completion that are awaiting further processing.

work-in-process (WIP)