Ch. 13 T/F

Profit margins tend to be inversely related to inventory turns

true

Solving quality problems can lead to lower inventory levels

true

The EOQ should be regarded as an approximate quantity rather than an exact quantity. Thus, rounding the calculated value is acceptable

true

The average inventory level and the number of orders per year are inversely related: As one increases, the other decreases

true

The basic EOQ model ignores the purchasing cost

true

The calculation of safety stock requires knowledge of demand and lead time variability

true

The fixed-order-interval model requires a larger amount of safety stock than the ROP model for the same risk of a stockout

true

The inventory value of the supply chain exceeds the inventory value of the organization's work-in-process inventory

true

The overall objective of inventory management is to achieve satisfactory levels of customer service while keeping inventory costs reasonable

true

The rate of demand is an important factor in determining the ROP

true

The single-period model can be very helpful in determining how much to order

true

The total cost curve is relatively flat near the EOQ

true

The two basic issues in inventory are how much to order and when to order

true

The two main concerns of inventory control relate to the costs and the level of customer service.

true

To provide satisfactory levels of customer service while keeping inventory costs within reasonable bounds, two fundamental decisions must be made about inventory: the timing and the size of orders

true

Using the EOQ model, the higher an item's carrying costs, the more frequently it will be ordered

true

Variability in demand and/or lead time can be compensated for by safety stock

true

When the item is offered for resale, shortage costs in the single-period model can include a charge for loss of customer goodwill

true

A quantity discount will lower the reorder point

false

A retail store that carries twice as much inventory as its competitor will provide twice the customer service level

false

A single-period model would be used mainly by organizations going out of business

false

An example of inventory holding cost is the cost of moving goods to temporary storage after receipt from a supplier

false

An inventory buffer adds value and lowers cost in all supply chains

false

Because price is not a factor in the EOQ formula, quantity discounts will not affect EOQ calculations

false

Decoupling operations applies to the railroad industry

false

Discrete stocking levels are used when an organization does not want visibility of inventory levels

false

EOQ inventory models are basically concerned with the timing of orders

false

In the A-B-C approach, C items typically represent about 15 percent of the number of items, but 60 percent of the dollar usage

false

In the EOQ formula, holding costs under 10 percent are expressed as percentages, above 10 percent are expressed as annual unit costs

false

In the fixed-order-interval model, the order size is the same for each order

false

In the quantity discount model, if holding costs are given as a percentage of unit price, a graph of the total cost curves will have the same EOQ for each curve

false

In the quantity discount model, the optimum quantity will always be found on the lowest total cost curve

false

It is critical that the exact quantity calculated in the EOQ model be ordered

false

ROP models assume that demand during lead time is composed of a series of dependent daily demands

false

ROP models indicate to managers the time between orders

false

Reorder point models are primarily used for dependent-demand items

false

Safety stock eliminates all stockouts

false

Safety stock is held because we anticipate future demand

false

The A-B-C approach involves classifying inventory items by unit cost, with expensive items classified as A items and low-cost items classified as C items

false

The average inventory level is inversely related to order size

false

The fixed-order-interval model requires a continuous monitoring of inventory levels

false

The objective of inventory management is to minimize the cost of holding inventory

false

The single-period model can be very helpful in determining when to order

false

Understocking an inventory item is a sure sign of inadequate inventory control

false

Annual ordering cost is inversely related to order size

true

Carrying cost is a function of order size; the larger the order, the higher the inventory carrying cost

true

Cycle counting can be used in motorcycle inventory control

true

DVD recorders would be an example of independent-demand items

true

In the single-period model, the service level is the probability that demand will not exceed the stocking level in any period

true

Interest, insurance, and opportunity costs are all associated with holding costs

true

Monitoring inventory turns over time can be used as a measure of performance

true

One important use of inventories in manufacturing is to decouple operations through the use of work-in-process inventories.

true

When to order can be calculated by the ROP and expressed as a quantity

true