Chapter 9

27) Independent-demand items are those items for which demand is influenced by market conditions and is not related to inventory decisions for any other items held in stock.

True

21) EOQ should be used if you follow a make-to-stock strategy and the item has relatively stable demand.

True

Scenario 9.4 Consider the following data for an independent-demand item maintained by Vicki Crittenden, the proprietor of a local auto repair shop: Weekly demand = 50 units Ordering cost = $8/order Holding cost = $4/unit/year Weeks in a year = 50 93) Use the information in Scenario 9.4. Due to new ordering procedures initiated by Crittenden, the ordering cost is dropping to $4 per order. At the same time, the weekly demand increases to 64 units per week due to an increase in business. What effect do these changes have on the EOQ quantity for this item? A) The EOQ quantity remains unchanged. B) The EOQ quantity increases by 20%. C) The EOQ quantity decreases by 20%. D) Sufficient information is not available for answering this question.

C

The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes. One of these gear assemblies, the "Smooth Shifter", is used for the two most expensive of Burdell's four models, and has an estimated annual demand of 300 units. Burdell estimates the cost to place an order is $40, and the holding cost for each assembly is $60 per year. The company operates 250 days per year. 79) Use the information in Scenario 9.2. What are the annual inventory holding costs if Burdell orders using the EOQ quantity? A) less than or equal to $300 B) greater than $300 but less than or equal to $500 C) greater than $500 but less than or equal to $700 D) greater than $700

C

The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volume assemblies, the XO-01, has an estimated annual demand of 8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $20 per year. The company operates 250 days per year. 71) Use the information in Scenario 9.1. What is the economic order quantity for the XO-01? A) less than or equal to 100 units B) greater than 100 units but less than or equal to 180 units C) greater than 180 units but less than or equal to 250 units D) greater than 250 units

C

17) ABC analysis is a process for categorizing SKUs according to dollar usage so that managers can focus on items with the highest dollar value.

True

19) Cycle counting is an inventory-control method whereby storeroom personnel physically count a small percent of the total number of items each day.

True

25) Considering the EOQ model, a reduction in ordering costs justifies reducing the lot sizes ordered.

True

29) If on-hand inventory = 100 units, scheduled receipts = 100 units and backorders = 100 units, the Inventory Position (IP) is 100 units.

True

3) When looking at inventory management, the term "lot size" refers to the quantity of an inventory item management either buys from a supplier or manufactures using internal processes.

True

30) A continuous review system is sometimes called a reorder point system

True

32) The scheduled receipts are orders that have been placed but not yet received.

True

33) As the service level increases, the probability of not running out of stock during a cycle decreases.

True

34) The two-bin inventory system is a type of visual system.

True

35) A periodic review system is a system in which an item's inventory position is reviewed periodically rather than continuously.

True

5) One component of the holding cost of inventory is interest.

True

8) A backorder occurs when a customer order cannot be filled when it is placed, but is instead filled later.

True

9) Setup cost is independent of order size.

True

39) Which of the following DOES NOT generate pressure to increase inventories? A) transportation costs B) backorders and stockouts C) inventory shrinkage costs D) quantity discounts

A

10) Reducing setup costs will increase the pressure to keep larger inventories.

False

13) Repeatability is an undesirable feature of some orders because they must be repeated until the order is filled correctly.

False

18) When using ABC analysis, class C SKUs should be reviewed frequently.

False

31) A continuous review system is sometimes called a fixed interval reorder system.

False

37) Which of the following generates pressure to decrease inventories? A) inventory shrinkage costs B) backorders and stockouts C) transportation costs D) quantity discounts

A

Shipments of Product X from a plant to a wholesaler are made in lots of 600. The wholesaler's average demand for X is 100 units per week. Lead time from plant to wholesaler is 4 weeks. The wholesaler pays for the shipments when they leave the plant.48) Refer to the instruction above. If the plant reduces its shipment lot size from 600 to 400 units and keeps its 4 week lead time, what is the wholesaler's new total cycle plus pipeline inventories? A) 600 units B) 300 units C) 500 units D) 400 units

A

52) Which of the following does not increase repeatability? A) parts standardization B) customization C) group technology D) flexible automation

B

60) Which one of the following is NOT a method for tracking inventory and ensuring accurate records? A) assigning responsibility to specific employees for issuing and receiving materials B) updating the reorder points to minimize safety stock C) cycle counting D) logic error checks

B

62) Which one of the following statements regarding the economic order quantity (EOQ) is TRUE? A) The EOQ model combines several different item orders to the same supplier. B) If an order quantity is larger than the EOQ, the annual holding cost for cycle inventory exceeds the annual ordering cost. C) The EOQ model assumes a variable demand pattern. D) When the interest rate drops, the inventory holding cost decreases and the EOQ decreases.

B

64) Which one of the following statements concerning the economic order quantity (EOQ) is TRUE? A) The EOQ is the order quantity that minimizes annual inventory holding costs. B) An increase in demand will increase the EOQ. C) The time between orders (TBO) will increase with an increase in holding costs. D) The EOQ formula assumes that there are only three relevant costs: holding, transportation, and setup.

B

91) An item experiences an annual demand of 7,200 units. It costs $8 to hold an item in inventory for one year and $16 to place an order. If the EOQ model is used, what is the time between orders? Assume that there are 52 business weeks in a year. A) less than 1 week B) greater than 1 week but less than or equal to 2 weeks C) greater than 2 weeks but less than or equal to 3 weeks D) greater than 3 weeks

B

The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes. One of these gear assemblies, the "Smooth Shifter", is used for the two most expensive of Burdell's four models, and has an estimated annual demand of 300 units. Burdell estimates the cost to place an order is $40, and the holding cost for each assembly is $60 per year. The company operates 250 days per year. 81) Use the information in Scenario 9.2. What are the total annual holding and ordering costs if Burdell orders using the EOQ quantity? A) greater than $1,500 B) greater than $1,000 but less than or equal to $1,500 C) greater than $750 but less than or equal to $1,000 D) less than or equal to $750

B

The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volume assemblies, the XO-01, has an estimated annual demand of 8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $20 per year. The company operates 250 days per year. 73) Use the information in Scenario 9.1. What are the annual ordering costs if Talbot orders using the EOQ quantity? A) less than or equal to $1,000 B) greater than $1,000 but less than or equal to $2,500 C) greater than $2,500 but less than or equal to $4,000 D) greater than $4,000

B

58) What is generally true about the class C SKUs in ABC analysis? They represent about: A) 20 percent of all SKUs. B) 30 percent of all SKUs. C) 5 percent of the dollar usage. D) 50 percent of the dollar usage.

C

The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volume assemblies, the XO-01, has an estimated annual demand of 8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $20 per year. The company operates 250 days per year. 74) Use the information in Scenario 9.1. What are the total annual holding and ordering costs if Talbot orders using the EOQ quantity? A) greater than $7,000 B) greater than $5,000 but less than or equal to $7,000 C) greater than $2,500 but less than or equal to $5,000 D) less than or equal to $2,500

C

Tom Bergman, owner and operator of the Earplug Superstore, is reviewing the costs associated with the store's best-selling hearing aid, the BZ15. The data available to Mr. Bergman concerning this device follow. Demand = 25 units/week Order cost = $3/order Holding cos = $1.50/unit/year The Earplug Superstore operates 52 weeks a year. 85) Use the information in Scenario 9.3. If Tom decides to order at the economic order quantity, what is the sum of the annual ordering cost and holding cost? A) less than or equal to $90 B) greater than $90 but less than or equal to $100 C) greater than $100 but less than or equal to $115 D) greater than $115

C

53) One of the secondary levers for reducing pipeline inventory is to: A) offer seasonal pricing plans. B) increase capacity cushions. C) accept only large orders. D) select more responsive suppliers.

D

The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volume assemblies, the XO-01, has an estimated annual demand of 8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $20 per year. The company operates 250 days per year. 76) Use the information in Scenario 9.1. How many times per year must Talbot order the XO-01 when orders are placed using the EOQ quantity? A) less than 10 times per year B) greater than 10 times but less than or equal to 20 times per year C) greater than 20 times but less than or equal to 30 times per year D) greater than 30 times per year

D

24) Considering the EOQ model, smaller lots are justified when holding costs are decreased.

False

26) Dependent demand items are those items for which demand is influenced by market conditions and is not related to inventory decisions for any other item held in stock.

False

4) The primary reason for keeping inventories low is that inventory represents a temporary monetary investment in goods on which a firm must pay interest.

True

7) A stockout occurs when an item that is typically stocked is not available to satisfy a demand the moment it occurs.

True

36) Which of the following generates pressure to increase inventories? A) inventory holding costs B) ordering costs C) storage and handling costs D) taxes and insurance

B

The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volume assemblies, the XO-01, has an estimated annual demand of 8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $20 per year. The company operates 250 days per year. 75) Use the information in Scenario 9.1. What is the cycle length (time between orders) when orders are placed using the EOQ quantity? A) less than 5 days B) greater than 5 days but less than or equal to 10 days C) greater than 10 days but less than or equal to 15 days D) greater than 15 days

B

104) Consider the following conditions for an item used in the Hess Company's manufacturing process: On-hand inventory: 40 units Open orders (scheduled receipts): 100 units Backorders: 60 units What is Hess's inventory position for this item? A) 200 units B) 140 units C) 80 units D) 40 units

C

40) Inventories needed for the production of services and goods (inputs to a firm's transformation processes) are called: A) quarantined materials B) work-in-process C) raw materials D) finished goods

C

100) Which one of the following statements represents an advantage of a Q system over the P system? A) A perpetual inventory system is not mandatory. B) Orders for multiple items from the same supplier can be combined more easily. C) Fixed replenishment intervals are possible, which can be, administratively, quite convenient. D) The Q system is more suited for quantity discounts and physical limitations.

D

38) Which of the following DOES NOT generate pressure to decrease inventories? A) taxes and insurance B) inventory holding costs C) storage and handling costs D) ordering costs

D

69) Sensitivity analysis on the economic order quantity (EOQ) formula can help the operations manager answer several questions on how to manage inventories. Which one of the following questions is NOT answered by EOQ sensitivity analysis? A) How critical are errors in estimating demand (D), inventory holding cost (H), and setup cost (S)? B) What should happen to lot sizes if interest rates drop? C) What should happen to cycle inventory if the demand rate increases? D) What should happen to lot sizes if supply and lead-time uncertainty increase?

D

1) Inventory management is the planning and controlling of inventories in order to meet the competitive priorities of the organization.

True

23) As the annual demand increases, the EOQ also increases.

True

57) What is generally true about the class C SKUs in ABC analysis? They represent about: A) 20 percent of all SKUs. B) 50 percent of all SKUs. C) 15 percent of the dollar usage. D) 50 percent of the dollar usage.

B

41) Items, such as components or assemblies, needed to manufacture a final product are called: A) quarantined materials B) work-in-process C) raw materials D) finished goods

B

11) Increasing inventory levels can sometimes help a firm reduce both its inbound and outbound transportation costs.

True

Shipments of Product X from a plant to a wholesaler are made in lots of 600. The wholesaler's average demand for X is 100 units per week. Lead time from plant to wholesaler is 4 weeks. The wholesaler pays for the shipments when they leave the plant. 46) Refer to the instruction above. What is the total of the wholesaler's current cycle plus pipeline inventories? A) 300 units B) 100 units C) 700 units D) 400 units

C

59) ABC analysis is closely related to: A) three-bin analysis. B) EOQ analysis. C) repeatability analysis. D) Pareto analysis.

D

Scenario 9.5 Cranium, Inc., purchases term papers from an overseas supplier under a continuous review system. The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day. It costs $60 to process each order and there is a five-day lead-time. The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level. Cranium operates 200 days per year. A normal distribution table is appended to this exam. 108) Use the information in Scenario 9.5. What is the EOQ for these papers? A) less than or equal to 3,000 units B) greater than 3,000 units but less than or equal to 4,000 units C) greater than 4,000 units but less than or equal to 5,000 units D) greater than 5,000 units

D

The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes. One of these gear assemblies, the "Smooth Shifter", is used for the two most expensive of Burdell's four models, and has an estimated annual demand of 300 units. Burdell estimates the cost to place an order is $40, and the holding cost for each assembly is $60 per year. The company operates 250 days per year. 80) Use the information in Scenario 9.2. What are the annual ordering costs if Burdell orders using the EOQ quantity? A) less than or equal to $200 B) greater than $200 but less than or equal to $350 C) greater than $350 but less than or equal to $500 D) greater than $500

D

101) Which one of the following statements about inventory control systems is best? A) A single-bin system is essentially a P system, with the target inventory and current inventory position established visually. B) A base-stock system minimizes ordering and setup costs by placing orders more infrequently. C) The base-stock system is mostly used for inexpensive items because it maximizes cycle inventory costs. D) Visual systems are intended for use with high-value items, such as jet engines, that don't experience a steady demand.

A

107) Consider the following conditions for an item used in the Hess Company's manufacturing process: On-hand inventory: 80 units Open orders (scheduled receipts): 100 units Backorders: 20 units Reorder point: 150 units Quantity per order: 50 units Which of the following statements best describes Hess's situation regarding inventory replenishment? A) No action is required, since Hess's inventory position is greater than the reorder point. B) Hess should order one lot of 50 units to cover its backorders. C) Because it is incurring backorders, Hess should increase its reorder point. D) Hess should place an order for 50 units, since their inventory position is less than the reorder point.

A

51) Which of the following is NOT a lever for reducing cycle inventories? A) place purchased item orders at fixed intervals B) reduce lot sizes for items moving in the supply chain C) streamline methods for placing orders and making machine set ups D) increase repeatability to eliminate the need for changeovers

A

102) Which one of the following descriptions of a base-stock system is best? A) It is particularly attractive when review and ordering costs are both significant. B) It can be seen as a way to minimize cycle inventory. C) Examples include gasoline storage tanks at a service station. D) An item's inventory is stored at two different locations or "bins."

B

103) Which one of the following statements about inventory control systems is true? A) A two-bin inventory system is essentially a P system because the inventory is reviewed only on a periodic basis. B) An optional replenishment system is particularly attractive when both review and ordering costs are significant. C) Visual systems are difficult to administer because records on current inventory position have to be kept for every item. D) Overstocking is quite common for those items that are managed by using the base-stock system.

B

106) Consider the following conditions for an item used in the Hess Company's manufacturing process: On-hand inventory: 80 units Open orders (scheduled receipts): 100 units Backorders: 20 units What is Hess's inventory position for this item? A) 200 units B) 160 units C) 180 units D) 80 units

B

Scenario 9.5 Cranium, Inc., purchases term papers from an overseas supplier under a continuous review system. The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day. It costs $60 to process each order and there is a five-day lead-time. The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level. Cranium operates 200 days per year. A normal distribution table is appended to this exam. 113) Use the information in Scenario 9.5. What is the standard deviation of demand throughout the five-day lead-time period? A) about 45 units B) about 67 units C) about 103 units D) about 200 units

B

Scenario 9.5 Cranium, Inc., purchases term papers from an overseas supplier under a continuous review system. The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day. It costs $60 to process each order and there is a five-day lead-time. The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level. Cranium operates 200 days per year. A normal distribution table is appended to this exam. 12) Use the information in Scenario 9.5. What is the cost of holding the safety stock necessary to maintain the 98% service level? A) less than or equal to $30 B) greater than $30 but less than $40 C) greater than $40 but less than $50 D) greater than $50

B

132) Your firm uses a continuous review system (Q system), in which the inventory position is updated after every transaction. The firm operates 52 weeks per year. One of the items has the following characteristics: Demand = 14,560 units per year Ordering cost = $40 per order Holding cost = $6 per unit per year Lead-time = 2 weeks Standard deviation in weekly demand = 100 units Cycle-service level = 80% If Q is made equal to the EOQ, what are the desired values for Q and R? A) Q is between 65 and 69, and R is between 398 and 402. B) Q is between 65 and 69, and R is between 362 and 366. C) Q is between 439 and 443, and R is between 678 and 682. D) Q is between 439 and 443, and R is between 559 and 563.

C

56) What is generally true about the class B SKUs in ABC analysis? They represent about: A) 20 percent of all SKUs and about 80 percent of the dollar usage. B) 80 percent of all SKUs and about 20 percent of the dollar usage. C) 30 percent of all SKUs and about 15 percent of the dollar usage. D) 50 percent of all SKUs and about 95 percent of the dollar usage.

C

Scenario 9.5 Cranium, Inc., purchases term papers from an overseas supplier under a continuous review system. The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day. It costs $60 to process each order and there is a five-day lead-time. The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level. Cranium operates 200 days per year. A normal distribution table is appended to this exam. 111) Use the information in Scenario 9.5. If lead-time increases by three days, what is the reorder point needed to maintain a 98% service level? A) less than or equal to 2,400 units B) greater than 2,400 units but less than 2,500 units C) greater than 2,500 units but less than 2,600 units D) greater than 2,600 units

C

Scenario 9.5 Cranium, Inc., purchases term papers from an overseas supplier under a continuous review system. The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day. It costs $60 to process each order and there is a five-day lead-time. The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level. Cranium operates 200 days per year. A normal distribution table is appended to this exam. 109) Use the information in Scenario 9.5. What is the reorder point R to satisfy a 98% cycle-service level? A) less than or equal to 1,500 units B) greater than 1,500 units but less than or equal to 1,600 units C) greater than 1,600 units but less than or equal to 1,700 units D) greater than 1,700 units

C

Scenario 9.5 Cranium, Inc., purchases term papers from an overseas supplier under a continuous review system. The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day. It costs $60 to process each order and there is a five-day lead-time. The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level. Cranium operates 200 days per year. A normal distribution table is appended to this exam. 114) Use the information in Scenario 9.5. What combination of changes in lead-time and service level would result in exactly the same level of safety stock as indicated in the table? A) Lead-time drops to 41 days and service level increases to 99%. B) Lead-time increases to 18.52 days and service level drops to 92%. C) Lead-time increases to 20.54 days and service level drops to 90%. D) Lead-time drops to 3.5 days and service level increases to 99.54%.

C

Scenario 9.9 Demand = 5,200 units/year Standard deviation of weekly demand = 11 units Ordering costs = $45/order Holding costs = $2/unit/year Cycle-service level = 90% (z for 90% = 1.28) Lead-time = 3 weeks Number of weeks per year = 52 week131) Use the information in Scenario 9.9. The firm decided to change to the periodic review system to control the item's inventory. For the most recent review, an inventory clerk checked the inventory of this item and found 500 units. There were no scheduled receipts at the time. How many units should be ordered? (HINT: Use the EOQ model to derive P, the time between reviews.) A) 0 units B) greater than 0 but less than or equal to 300 units C) greater than 300 but less than or equal to 600 units D) greater than 600 units

C

Scenario 9.9 Demand = 5,200 units/year Standard deviation of weekly demand = 11 units Ordering costs = $45/order Holding costs = $2/unit/year Cycle-service level = 90% (z for 90% = 1.28) Lead-time = 3 weeks Number of weeks per year = 52 weeks 130) Use the information in Scenario 9.9. If a firm uses the continuous review system to control the inventory, what would be the reorder point? A) 0 units B) greater than 0 but less than or equal to 300 units C) greater than 300 but less than or equal to 600 units D) greater than 600 units

C

105) Consider the following conditions for an item used in the Hess Company's manufacturing process: On-hand inventory: 40 units Open orders (scheduled receipts): 100 units Backorders: 60 units Reorder point: 100 units Quantity per order: 50 units Which of the following statements best describes Hess's situation regarding inventory replenishment? A) No action is required, since a scheduled receipt is due to be delivered to Hess. B) To cover its backorders, Hess should order two lots of 50 units. C) Because it is incurring backorders, Hess should increase its reorder point. D) Hess should place an order for 50 units, since the inventory position is less than the reorder point.

D

42) Items sold to a firm's customers are called: A) quarantined materials B) work-in-process C) raw materials D) finished goods

D

55) What is generally true about the class A SKUs in ABC analysis? They represent about: A) 50 percent of all SKUs. B) 80 percent of all SKUs. C) 20 percent of the dollar usage. D) 80 percent of the dollar usage.

D

Scenario 9.5 Cranium, Inc., purchases term papers from an overseas supplier under a continuous review system. The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day. It costs $60 to process each order and there is a five-day lead-time. The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level. Cranium operates 200 days per year. A normal distribution table is appended to this exam. 110) Use the information in Scenario 9.5. What service level does a reorder point of 1,524 imply? A) less than or equal to 50% B) greater than 50% but less than or equal to 55% C) greater than 55% but less than or equal to 60% D) greater than 60%

D

14) The primary lever to reduce anticipation inventory is to place orders closer to the time when they must be received.

False

16) A stock-keeping unit (SKU) is a specially designed container for holding a specific amount of an inventory item somewhere along the supply chain.

False

2) When looking at inventory management, the term "lot size" refers to the physical dimensions of the area where the inventory is stored.

False

20) EOQ should be used if you use a make-to-order strategy and the customer specifies the entire order be delivered in one shipment.

False

54) What is generally true about the class A SKUs in ABC analysis? They represent about: A) 20 percent of all SKUs. B) 30 percent of all SKUs. C) 20 percent of the dollar usage. D) 50 percent of the dollar usage.

A

90) A neighborhood sportswear store sells a pair of Victoria sneakers for $40. Due to the recent fitness craze, these shoes are in high demand: 50 pairs of shoes are sold per week. The ordering cost is $20 per order, and the annual holding cost is 20% of selling price. If the store operates 52 weeks a year, what can you say about the current lot size of 235? A) too large B) too small C) just right D) cannot tell from the information given

A

98) Which one of the following statements is best? A) A P system requires more safety stock than a Q system. B) A P system lends itself more to quantity discounts than does a Q system. C) A P system requires more administrative control and computer support than does a Q system. D) In a periodic review system, the value of Q is kept the same from one cycle to another.

A

The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes. One of these gear assemblies, the "Smooth Shifter", is used for the two most expensive of Burdell's four models, and has an estimated annual demand of 300 units. Burdell estimates the cost to place an order is $40, and the holding cost for each assembly is $60 per year. The company operates 250 days per year. 78) Use the information in Scenario 9.2. What is the economic order quantity for the Smooth Shifter? A) less than or equal to 40 units B) greater than 40 units but less than or equal to 80 units C) greater than 80 units but less than or equal to 120 units D) greater than 120 units

A

Tom Bergman, owner and operator of the Earplug Superstore, is reviewing the costs associated with the store's best-selling hearing aid, the BZ15. The data available to Mr. Bergman concerning this device follow. Demand = 25 units/week Order cost = $3/order Holding cos = $1.50/unit/year The Earplug Superstore operates 52 weeks a year. 88) Use the information in Scenario 9.3. If Tom orders at the economic order quantity, how many units does he order at a time? A) less than or equal to 75 units B) greater than 75 but less than or equal to 150 units C) greater than 150 but less than or equal to 250 units D) greater than 250 units

A

Use the following to answer the questions below. Shipments of Product A from a distribution center to a retailer are made in lots of 350. The retailer's average demand for A is 75 units per week. Lead time from distributor to retailer is 3 weeks. The retailer pays for the shipments when they leave the distributor. The distributor has agreed to reduce the lead time to 2 weeks if the retailer will purchase quantities of 400 per shipment instead of 350. 44) Refer to the instruction above. With the change in lead times, the pipeline inventory will: A) decrease by 75 units. B) increase by 50 units. C) decrease by 25 units. D) increase by 25 units.

A

67) The Lemma Company manufactures and sells 10 products. Ways have been found to cut both the setup and inventory holding costs in half. What effect will this have on the economic order quantities of the 10 products? A) They will be reduced by a factor of 1.41. B) They will not change. C) They will be reduced by a factor of 2.00. D) They will be increased by a factor of 1.41.

B

Scenario 9.4 Consider the following data for an independent-demand item maintained by Vicki Crittenden, the proprietor of a local auto repair shop: Weekly demand = 50 units Ordering cost = $8/order Holding cost = $4/unit/year Weeks in a year = 5092) Use the information in Scenario 9.4. If Crittenden uses the EOQ model, how frequently must she place orders for this item? A) every week B) every 2 weeks C) every 3 weeks D) every 4 weeks

B

Shipments of Product X from a plant to a wholesaler are made in lots of 600. The wholesaler's average demand for X is 100 units per week. Lead time from plant to wholesaler is 4 weeks. The wholesaler pays for the shipments when they leave the plant.47) Refer to the instruction above. If the plant reduces its lead time from 4 to 2 weeks and keeps its 600 unit lot size, what is the wholesaler's new total cycle plus pipeline inventories? A) 300 units B) 500 units C) 700 units D) 200 units

B

Shipments of Product X from a plant to a wholesaler are made in lots of 600. The wholesaler's average demand for X is 100 units per week. Lead time from plant to wholesaler is 4 weeks. The wholesaler pays for the shipments when they leave the plant.49) Refer to the instruction above. Which of the following situations results in the wholesaler's total cycle plus pipeline inventories amounting to 550 units? A) plant shipment lot size of 400 and plant-to-wholesaler lead time of 2 weeks B) plant shipment lot size of 500 and plant-to-wholesaler lead time of 3 weeks C) plant shipment lot size of 400 and plant-to-wholesaler lead time of 3 weeks D) plant shipment lot size of 600 and plant-to-wholesaler lead time of 4 weeks

B

The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes. One of these gear assemblies, the "Smooth Shifter", is used for the two most expensive of Burdell's four models, and has an estimated annual demand of 300 units. Burdell estimates the cost to place an order is $40, and the holding cost for each assembly is $60 per year. The company operates 250 days per year. 83) Use the information in Scenario 9.2. How many times per year must Burdell order the Smooth Shifter when orders are placed using the EOQ quantity? A) less than or equal to 10 times per year B) more than 10 times but fewer than or equal to 20 times per year C) more than 20 times but fewer than or equal to 30 times per year D) more than 30 times per year

B

The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volume assemblies, the XO-01, has an estimated annual demand of 8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $20 per year. The company operates 250 days per year. 77) Use the information in Scenario 9.1. The purchasing manager decides that, in order to save purchasing time, orders for the XO-01 will be placed every three months, or four times per year. How much does this approach cost Talbot in total annual holding and ordering costs (instead of Talbot ordering using the EOQ quantity)? A) greater than $18,000 B) greater than $14,000 but less than or equal to $18,000 C) greater than $10,000 but less than or equal to $14,000 D) less than or equal to $10,000

B

The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volume assemblies, the XO-01, has an estimated annual demand of 8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $20 per year. The company operates 250 days per year.72) Use the information in Scenario 9.1. What are the annual inventory holding costs if Talbot orders using the EOQ quantity? A) less than or equal to $1,500 B) greater than $1,500 but less than or equal to $4,000 C) greater than $4,000 but less than or equal to $6,500 D) greater than $6,500

B

Tom Bergman, owner and operator of the Earplug Superstore, is reviewing the costs associated with the store's best-selling hearing aid, the BZ15. The data available to Mr. Bergman concerning this device follow. Demand = 25 units/week Order cost = $3/order Holding cos = $1.50/unit/year The Earplug Superstore operates 52 weeks a year. 89) Use the information in Scenario 9.3. If Tom orders such that his annual holding cost is twice what his annual ordering cost is, how many units at a time is he ordering? A) less than or equal to 100 units B) greater than 100 but less than or equal to 105 units C) greater than 105 but less than or equal to 110 units D) greater than 110 units

B

63) Which one of the following statements concerning the economic order quantity (EOQ) model is TRUE? A) An increase in holding cost will increase the EOQ. B) A decrease in demand will increase the EOQ. C) A decrease in holding cost will increase the EOQ. D) None of the above is true.

C

65) You have taken a job in industry and are facing your first ordering decision. As you prepare to place the order, you remember your instructor teaching you that you wouldn't use the EOQ formula if: A) you followed a make-to-stock strategy for an item with stable demand. B) your carrying costs and ordering costs are known and relatively stable. C) the order size is constrained by capacity limitations such as the number or size of the delivery trucks. D) your setup costs and holding costs remain constant and can be determined.

C

66) A company operating under an EOQ policy enjoys rising annual demand for their products for three consecutive years. During this time their holding cost and ordering cost remain constant. Which statement is best? A) Their order quantity will fall and so will the time between orders. B) Their order quantity will fall but the time between orders will rise. C) Their order quantity will rise but the time between orders will fall. D) Their order quantity will rise and so will the time between orders.

C

96) Which one of the following statements is best? 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) When no safety stock is maintained, stockouts will occur during approximately 50% of the cycles. D) The level of safety stock maintained is greater if mean absolute deviation (MAD) is used rather than standard deviation in estimating forecast errors.

C

99) Which one of the following statements represents an advantage of the P system over the Q system? A) Less safety stock is carried to achieve the same service level. B) The replenishment intervals can be more easily individualized for items. C) Orders can be more easily combined to the same supplier. D) A P system is more suitable for quantity discounts and capacity limitations.

C

61) Which one of the following is not an assumption of the EOQ model? A) Decisions for one item can be made independently of decisions made for other items. B) There is no uncertainty in lead-time. C) The amount of an order received is exactly equal to what was ordered, without any "short shipments" from a supplier or scrap losses in the shop. D) Quantity discounts can be taken advantage of for large lot sizes.

D

68) The Lemming Company implements an aggressive marketing campaign and effectively doubles the annual demand for Model 13s. Their total annual holding cost should: A) decrease by 50%. B) increase by 100%. C) stay the same. D) increase by 40%.

D

70) Vilas County Hospital consumed 400 boxes of bandages per week last year. The price of bandages was $80 per box, and the hospital operates 52 weeks per year. The cost of processing an order was $64, and the cost of holding one box throughout a full year was 20% of the value of the material. Last year the hospital ordered bandages, on average, once every two weeks, each time ordering 800 boxes. What extra cost did the hospital incur that could have been avoided if the EOQ concept had been applied? A) less than or equal to $650 B) more than $650 and less than $1,050 C) more than $1,050 and less than $1,450 D) more than $1,450

D

94) Which one of the following statements concerning a continuous review system is best? A) The inventory position (IP) of an item measures the item's ability to satisfy future demand, relying only on the on-hand inventory. B) An item's inventory position under a continuous review system increases by Q units as soon as an order is received. C) An item's on-hand inventory increases by Q units as soon as an order is placed. D) Under a continuous review system, an item's inventory position corresponds to the on-hand inventory unless there are backorders or one or more scheduled receipts.

D

95) Which one of the following descriptions best defines the cycle-service level as a measure of customer service? A) the preferred proportion of annual demand instantaneously filled from stock B) the number of stockouts tolerated per year C) the preferred proportion of days in the year when an item is in stock D) the desired probability of not running out of stock in any one inventory cycle

D

97) An inventory system answers two important questions: when to order and how much to order. Which of the following statements correctly explains how a Q system (continuous review system) or a P system (periodic review system) answers these questions? A) Under a Q system, a fixed quantity is ordered every P time period. B) Under a Q system, an order is placed to replenish the inventory position up to the target level T when the inventory position reaches the reorder point R. C) Under a P system, a fixed quantity Q is ordered when the inventory position reaches the reorder point R. D) Under a P system, an order is placed to replenish the inventory position up to the target level T every P time periods.

D

Shipments of Product A from a distribution center to a retailer are made in lots of 350. The retailer's average demand for A is 75 units per week. Lead time from distributor to retailer is 3 weeks. The retailer pays for the shipments when they leave the distributor. The distributor has agreed to reduce the lead time to 2 weeks if the retailer will purchase quantities of 400 per shipment instead of 350. 43) Refer to the instruction above. With the change in purchased quantities, the average cycle inventory will: A) decrease by 75 units. B) increase by 50 units. C) decrease by 25 units. D) increase by 25 units.

D

Shipments of Product A from a distribution center to a retailer are made in lots of 350. The retailer's average demand for A is 75 units per week. Lead time from distributor to retailer is 3 weeks. The retailer pays for the shipments when they leave the distributor. The distributor has agreed to reduce the lead time to 2 weeks if the retailer will purchase quantities of 400 per shipment instead of 350. 45) Refer to the instruction above. The net impact on the retailer will be: A) no net change in average cycle and pipeline inventories. B) a net average increase in cycle and pipeline inventories of 50 units. C) a net average decrease in cycle and pipeline inventories of 75 units. D) a net average decrease in cycle and pipeline inventories of 50 units.

D

Shipments of Product X from a plant to a wholesaler are made in lots of 600. The wholesaler's average demand for X is 100 units per week. Lead time from plant to wholesaler is 4 weeks. The wholesaler pays for the shipments when they leave the plant.50) Refer to the instruction above. Which of the following situations results in the wholesaler's total cycle plus pipeline inventories amounting to 400 units? A) plant shipment lot size of 500 and plant-to-wholesaler lead time of 3 weeks B) plant shipment lot size of 400 and plant-to-wholesaler lead time of 3 weeks C) plant shipment lot size of 600 and plant-to-wholesaler lead time of 4 weeks D) plant shipment lot size of 400 and plant-to-wholesaler lead time of 2 weeks

D

The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes. One of these gear assemblies, the "Smooth Shifter", is used for the two most expensive of Burdell's four models, and has an estimated annual demand of 300 units. Burdell estimates the cost to place an order is $40, and the holding cost for each assembly is $60 per year. The company operates 250 days per year. 82) Use the information in Scenario 9.2. What is the cycle length (time between orders) when orders are placed using the EOQ quantity? A) less than or equal to 5 days B) greater than 5 days but less than or equal to 10 days C) greater than 10 days but less than or equal to 15 days D) greater than 15 days

D

The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes. One of these gear assemblies, the "Smooth Shifter", is used for the two most expensive of Burdell's four models, and has an estimated annual demand of 300 units. Burdell estimates the cost to place an order is $40, and the holding cost for each assembly is $60 per year. The company operates 250 days per year. 84) Use the information in Scenario 9.2. The purchasing manager decides that, in order to save purchasing time, orders for the Smooth Shifter will be placed once a month, or twelve times per year. How much does this approach cost Burdell in additional annual holding and ordering costs (instead of Burdell ordering using the EOQ quantity)? A) more than $500 B) more than $200 but less than or equal to $500 C) more than $50 but less than or equal to $200 D) less than or equal to $50

D

Tom Bergman, owner and operator of the Earplug Superstore, is reviewing the costs associated with the store's best-selling hearing aid, the BZ15. The data available to Mr. Bergman concerning this device follow. Demand = 25 units/week Order cost = $3/order Holding cos = $1.50/unit/year The Earplug Superstore operates 52 weeks a year. 86) Use the information in Scenario 9.3. Tom cuts the ordering cost in half by implementing a streamlined processing system. How many fewer units should he now order each time he places an order? A) less than or equal to 10 units B) greater than 10 but less than or equal to 15 units C) greater than 15 but less than or equal to 20 units D) greater than 20 units

D

Tom Bergman, owner and operator of the Earplug Superstore, is reviewing the costs associated with the store's best-selling hearing aid, the BZ15. The data available to Mr. Bergman concerning this device follow. Demand = 25 units/week Order cost = $3/order Holding cos = $1.50/unit/year The Earplug Superstore operates 52 weeks a year. 87) Use the information in Scenario 9.3. If Tom orders a one-year supply at a time, how much higher are his total (ordering and holding) costs compared to total costs incurred if he ordered at his EOQ? A) less than or equal to $600 B) greater than $600 but less than or equal to $700 C) greater than $700 but less than or equal to $800 D) greater than $800

D

22) The EOQ is the smallest lot size that a supplier will allow a customer to order.

False

28) If on-hand inventory = 100 units, scheduled receipts = 100 units and backorders = 100 units, the Inventory Position (IP) is the sum of the three, or 300 units.

False

6) One component of the ordering cost of inventory is shrinkage.

False

12) A quantity discount is attractive because there is a drop in the price per unit when the order is sufficiently large.

True

15) A stock-keeping unit (SKU) is an individual item or product that has an identifying code and is held in inventory somewhere along the supply chain.

True