Chapter 12

An inventory decision rule states "when the inventory level goes down to 14 gearboxes, 100 gearboxes will be ordered." Which of the following statements is true?

14 is the reorder point, and 100 is the order quantity.

Which of the following statements about ABC analysis is false?

ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.

Which of the following is a function of inventory?

All of the above are functions of inventory.

Which of the following statements about the basic EOQ model is true?

All of the above statements are true.

In cycle counting, the frequency of item counting and stock verification usually varies from item to item depending upon the item's classification.

TRUE

In the quantity discount model, it is possible to have a cost-minimizing solution where annual ordering costs do not equal annual carrying costs.

TRUE

In the simple EOQ model, the EOQ would rise if the ordering cost were to increase.

TRUE

No matter what method of inventory management is used, record accuracy is of utmost importance.

TRUE

One advantage of cycle counting is that it eliminates annual inventory adjustments.

TRUE

One advantage of cycle counting is that it maintains accurate inventory records.

TRUE

One advantage of the fixed-period inventory system is that no physical count of inventory items occurs after an item is withdrawn from inventory.

TRUE

One function of inventory is to provide a hedge against inflation.

TRUE

One function of inventory is to take advantage of quantity discounts.

TRUE

Safety stock can serve as a buffer against uneven demand.

TRUE

Service level is the complement of the probability of a stockout.

TRUE

The overall objective of inventory management is balancing the cost of inventory against the cost of providing reasonable levels of customer service.

TRUE

The reorder point is the inventory level at which action is taken to replenish the stocked item.

TRUE

Among the advantages of cycle counting is that it

allows more rapid identification of errors and consequent remedial action than is possible with annual physical inventory

ABC analysis divides on-hand inventory into three classes, generally based upon

annual dollar volume

The EOQ model with quantity discounts attempts to determine

how many units should be ordered

In the basic EOQ model, if the cost of placing an order doubles, and all other values remain constant, the EOQ will

increase by about 41%

A product whose EOQ is 400 experiences a 50% increase in demand. The new EOQ is

increased by less than 50%

All of the following statements about ABC analysis are true except

it states that all items require the same degree of control

A product whose EOQ is 40 experiences a decrease in ordering cost from $90 per order to $10. The revised EOQ is

one-third as large

Cycle counting

provides a measure of inventory accuracy

ABC analysis is based upon the principle that

there are usually a few critical items, and many items that are less critical

The two most basic inventory questions answered by the typical inventory model are

timing and quantity of orders

Which of the following would not generally be a motive for a firm to hold inventories?

to minimize holding costs

Most inventory models attempt to minimize

total inventory based costs

If demand and lead time are uniform and constant, there is no need for safety stock.

TRUE

Which of the following statements about the basic EOQ model is false?

If annual demand were to double, the EOQ would also double.

Which of the following statements regarding the production order quantity model is true?

It relaxes the assumption that all the order quantity is received at one time.

A major challenge in inventory management is to maintain a balance between inventory investment and customer service.

TRUE

A production order quantity problem has a longer period between orders compared to an economic order quantity problem using the same inputs (except for the noninstantaneous receipt).

TRUE

ABC inventory analysis is based on the Pareto principle.

TRUE

Fixed-period systems may have the same review periods for several inventory items.

TRUE