OM Chapter 12

True or False? Insurance and taxes on inventory are part of the costs known as setup or ordering costs.

False

True or False? Work-in-process inventory is devoted to maintenance, repair, and operating materials.

False

Which of the following should be higher in P systems than Q systems? ◦A) lead time ◦B) demand ◦C) order size ◦D) order spacing ◦E) safety stock

safety stock

An advantage of the fixed-period inventory system is that: ◦A) safety stock will be lower than it would be under a fixed-quantity inventory system. ◦B) there is no physical count of inventory items when an item is withdrawn. ◦C) no inventory records are required. ◦D) orders usually are for smaller order quantities. ◦E) the average inventory level is reduced.

there is no physical count of inventory items when an item is withdrawn

Which of the following statements about ABC analysis is FALSE? A) ABC analysis is based on the presumption that controlling the few most important items produces the vast majority of inventory savings. B) In ABC analysis, "A" items should have tighter physical inventory control than "B" or "C" items have. C) In ABC analysis, forecasting methods for "C" items may be less sophisticated than for "A" items. D) ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings. E) Criteria other than annual dollar volume, such as high holding cost or delivery problems, can determine item classification in ABC analysis.

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

Which of the following statements regarding the reorder point is TRUE? ◦A) The reorder point is that quantity that triggers an action to restock an item. ◦B) There is a reorder point even if lead time and demand during lead time are constant. ◦C) The reorder point is larger than d × L if safety stock is present. ◦D) A shorter lead time implies a smaller reorder point. ◦E) All of the above are true.

All of the above are true.

Which of the following items is mostly likely managed using a single-period order model? ◦A) Christmas trees ◦B) canned food at the grocery store ◦C) automobiles at a dealership ◦D) metal for a manufacturing process ◦E) gas sold to a gas station

Christmas trees

Which of the following statements regarding control of service inventories is TRUE? A) Service inventory is a fictional concept, because services are intangible. B) Service inventory needs no safety stock, because there's no such thing as a service stockout. C) Effective control of all goods leaving the facility is one applicable technique. D) Service inventory has carrying costs but no setup costs. E) Good personnel selection, training, and discipline are easy.

Effective control of all goods leaving the facility is one applicable technique.

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? ◦A) One hundred is the reorder point, and 14 is the order quantity. ◦B) Fourteen is the reorder point, and 100 is the order quantity. ◦C) The number 100 is a function of demand during lead time. ◦D) Fourteen is the safety stock, and 100 is the reorder point. ◦E) None of the above is true.

Fourteen is the reorder point, and 100 is the order quantity

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

True

ABC analysis divides on-hand inventory into three classes, generally based upon which of the following? A) item quality B) unit price C) the number of units on hand D) annual demand E) annual dollar volume

annual dollar volume

Cycle counting: A) is a process by which inventory records are verified once a year. B) eliminates annual inventory adjustments. C) provides a measure of inventory turnover. D) assumes that all inventory records must be verified with the same frequency. E) assumes that the most frequently used items must be counted more frequently.

eliminates annual inventory adjustments

Which category of inventory holding costs has a much higher percentage than average for rapid-change industries such as PCs and cell phones? A) housing costs B) material handling costs C) labor cost D) investment costs E) pilferage, scrap, and obsolescence

pilferage, scrap, and obsolescence

Which of the following would NOT generally be a motive for a firm to hold inventories? A) to decouple various parts of the production process B) to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand C) to take advantage of quantity discounts D) to minimize holding costs E) to hedge against inflation

to minimize holding costs

True or False? Retail inventory that is unaccounted for between receipt and time of sale is known as shrinkage.

true