QMB chapter 12

The demand for automobiles would be considered an independent demand.

True (Inventory models, moderate)

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

True (Probabilistic models and safety stock, moderate)

Which item to order and with which supplier the order should be placed are the two fundamental issues in inventory management.

False (Introduction, moderate)

ABC analysis classifies inventoried items into three groups, usually based on annual units or quantities used.

False (Inventory management, easy)

ABC analysis is based on the presumption that carefully controlling all items is necessary to produce important inventory savings.

False (Inventory management, easy)

Cycle counting is an inventory control technique exclusively used for cyclical items.

False (Inventory management, moderate)

The fixed-period inventory model can have a stockout during the review period as well as during the reorder period, which is why fixed-period models require more safety stock than fixed-quantity models.

True (Inventory models for independent demand, easy)

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 (Inventory models for independent demand, moderate)

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

True (Inventory models for independent demand, moderate)

If setup costs are reduced by substantial reductions in setup time, the production order quantity is also reduced.

True (Inventory models, and Inventory models for independent demand, easy)

Units of safety stock are additions to the reorder point that allow for variability in the rate of demand, the length of lead time, or both.

True (Probabilistic models and safety stock, easy)

48. Which of the following statements about the basic EOQ model is true? a. If the ordering cost were to double, the EOQ would rise. b. If annual demand were to double, the EOQ would increase. c. If the carrying cost were to increase, the EOQ would fall. d. If annual demand were to double, the number of orders per year would increase. e. All of the above statements are true

.e. All of the above statements are true.

Work-in-process inventory is devoted to maintenance, repair, and operations.

False (Functions of inventory, easy)

In the quantity discount model, the cost of acquiring goods (product cost) is not a factor in determining lot size.

False (Inventory models for independent demand, easy)

At the economic order quantity, holding costs are equal to purchasing costs.

False (Inventory models for independent demand, moderate)

In the simple EOQ model, if annual demand were to increase, the EOQ would increase proportionately.

False (Inventory models for independent demand, moderate)

In the simple EOQ model, if the carrying cost were to double, the EOQ would also double.

False (Inventory models for independent demand, moderate)

The EOQ model is best suited for items whose demand is dependent on other products.

False (Inventory models for independent demand, moderate)

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

False (Inventory models, easy)

Safety stock in inventory systems depends only on the average demand during the lead time.

False (Probabilistic models and safety stock, moderate)

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

True (Functions of inventory, easy)

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

True (Introduction, easy)

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

True (Inventory management, moderate)

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

True (Inventory management, moderate)

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

True (Inventory management, moderate)

In the production order quantity (POQ) model, inventory does not arrive in a single moment but flows in at a steady rate, resulting in a larger lot size than in an otherwise identical EOQ problem.

True (Inventory models for independent demand, moderate)

58. Which of the following statements regarding the production order quantity model is true? a. It applies only to items produced in the firm's own production departments. b. It relaxes the assumption that all the order quantity is received at one time. c. It relaxes the assumption that the demand rate is constant. d. It minimizes the total production costs. e. It minimizes inventory

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

38. The two most basic inventory questions answered by the typical inventory model are a. timing and cost of orders b. quantity and cost of orders c. timing and quantity of orders d. order quantity and service level e. ordering cost and carrying cost

c. timing and quantity of orders

45. Most inventory models attempt to minimize a. the likelihood of a stockout b. the number of items ordered c. total inventory based costs d. the number of orders placed e. the safety stock

c. total inventory based costs

59. Which of these statements about the production order quantity model is false? a. The production order quantity model is appropriate when the assumptions of the basic EOQ model are met, except that receipt is noninstantaneous. b. Because receipt is noninstantaneous, some units are used immediately, not stored in inventory. c. Average inventory is less than one-half of the production order quantity. d. All else equal, the smaller the ratio of demand rate to production rate, the larger is the production order quantity. e. None of the above is false

d. All else equal, the smaller the ratio of demand rate to production rate, the larger is the production order quantity.

68. The purpose of safety stock is to a. replace failed units with good ones b. eliminate the possibility of a stockout c. eliminate the likelihood of a stockout due to erroneous inventory tally d. control the likelihood of a stockout due to the variability of demand during lead time e. protect the firm from a sudden decrease in demand

d. control the likelihood of a stockout due to the variability of demand during lead time

In ABC analysis, "A" Items are the most tightly controlled.

True (Inventory management, moderate)

74. The fixed-period inventory model requires more safety stock than the fixed-quantity models because a. a stockout can occur during the review period as well as during the lead time b. this model is used for products that have large standard deviations of demand c. this model is used for products that require very high service levels d. replenishment is not instantaneous e. setup costs and holding costs are large

a. a stockout can occur during the review period as well as during the lead time

46. In the basic EOQ model, if the cost of placing an order doubles, and all other values remain constant, the EOQ will a. increase by about 41% b. increase by 100% c. increase by 200% d. increase, but more data is needed to say by how much e. either increase or decrease

a. increase by about 41%

36. Cycle counting a. is a process by which inventory periodically verified b. provides a measure of inventory accuracy 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

a. is a process by which inventory periodically verified

28. Which of the following statements regarding Amazon.com is false? a. The company was opened by Jeff Bezos in 1995. b. The company was founded as, and still is, a "virtual retailer" with no inventory. c. The company is now a world-class leader in warehouse management and automation. d. The company uses both United Parcel Service and the U.S. Postal Service as shippers. e. Amazon obtains its competitive advantage through inventory management.

b. The company was founded as, and still is, a "virtual retailer" with no inventory.

51. A product whose EOQ is 400 experiences a 50% increase in demand. The new EOQ is a. unchanged b. increased by less than 50% c. increased by 50% d. increased by more than 50% e. cannot be determined

b. increased by less than 50%

34. ABC analysis is based upon the principle that a. all items in inventory must be monitored very closely b. there are usually a few critical items, and many items which are less critical c. an item is critical if its usage is high d. more time should be spent on class "C" items because there are more of them e. an item is critical if its unit price is high

b. there are usually a few critical items, and many items which are less critical

76. An advantage of the fixed-period inventory system is that a. the supplier will be more cooperative 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

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

37. 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 not setup costs. e. All of the above are true.

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

32. 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 are tightly controlled, have accurate records, and receive regular review by major decision makers. c. In ABC analysis, "C" Items have minimal records, periodic review, and simple controls. d. ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings. e. All of the above statements are true.

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

49. Which of the following statements about the basic EOQ model is false? a. If the setup cost were to decrease, the EOQ would fall. b. If annual demand were to increase, the EOQ would increase. c. If the ordering cost were to increase, the EOQ would rise. d. If annual demand were to double, the EOQ would also double. e. All of the above statements are true

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

64. Which of the following statements about quantity discounts is false? a. The cost-minimizing solution may or may not be where annual holding costs equal annual ordering costs. b. In inventory management, item cost becomes relevant to inventory decisions only when a quantity discount is available. c. If carrying costs are expressed as a percentage of value, EOQ is larger at each lower price in the discount schedule. d. The larger annual demand, the less attractive a discount schedule will be. e. The smaller the ordering cost, the less attractive a discount schedule will be

d. The larger annual demand, the less attractive a discount schedule will be.

70. If demand is not uniform and constant, then stockout risks can be controlled by a. increasing the EOQ b. placing an extra order c. raising the selling price to reduce demand d. adding safety stock e. reducing the reorder point

d. adding safety stock

39. Among the advantages of cycle counting is that it a. makes the annual physical inventory more acceptable to management b. does not require the detailed records necessary when annual physical inventory is used c. does not require highly trained people d. allows more rapid identification of errors and consequent remedial action than is possible with annual physical inventory e. does not need to be performed for less expensive items

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

56. The EOQ model with quantity discounts attempts to determine a. what is the lowest amount of inventory necessary to satisfy a certain service level b. what is the lowest purchasing price c. whether to use fixed-quantity or fixed-period order policy d. how many units should be ordered e. what is the shortest lead time

d. how many units should be ordered

33. All of the following statements about ABC analysis are true except a. inventory may be categorized by measures other than dollar volume b. it categorizes on-hand inventory into three groups based on annual dollar volume c. it is an application of the Pareto principle d. it states that all items require the same degree of control e. it states that there are the critical few and the trivial many inventory items

d. it states that all items require the same degree of control

31. Which of the following is not one of the four main types of inventory? a. raw material inventory b. work-in-process inventory c. maintenance/repair/operating supply inventory d. safety stock inventory e. All of these are main types of inventory.

d. safety stock inventory

69. The proper quantity of safety stock is typically determined by a. minimizing an expected stockout cost b. carrying sufficient safety stock so as to eliminate all stockouts c. meeting 95% of all demands d. setting the level of safety stock so that a given stockout risk is not exceeded e. minimizing total costs

d. setting the level of safety stock so that a given stockout risk is not exceeded

75. A disadvantage of the fixed-period inventory system is that a. it involves higher ordering costs than the fixed quantity inventory system b. additional inventory records are required c. the average inventory level is decreased d. since there is no count of inventory during the review period, a stockout is possible e. orders usually are for larger quantities

d. since there is no count of inventory during the review period, a stockout is possible

30. Which of the following would not generally be a motive for a firm to hold inventories? a. to decouple or separate parts of the production process b. to provide a stock of goods that will provide a selection for customers c. to take advantage of quantity discounts d. to minimize holding costs e. All of the above are functions of inventory.

d. to minimize holding costs

Which of the following are elements of inventory holding costs? a. housing costs b. material handling costs c. investment costs d. pilferage, scrap, and obsolescence e. All of the above are elements of inventory holding cost.

e. All of the above are elements of inventory holding cost.

29. Which of the following is a function of inventory? a. to decouple or separate parts of the production process b. to decouple the firm from fluctuations in demand and provide a stock of goods that will provide a selection for customers c. to take advantage of quantity discounts d. to hedge against inflation e. All of the above are functions of inventory.

e. All of the above are functions of inventory.

55. 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 x L if safety stock is present. d. The fixed-period model has no reorder point. e. All of the above are true

e. All of the above are true.

35. ABC analysis divides on-hand inventory into three classes, generally based upon a. item quality b. unit price c. the number of units on hand d. annual demand e. annual dollar volume

e. annual dollar volume

63. When quantity discounts are allowed, the cost-minimizing order quantity a. is always an EOQ quantity b. minimizes the sum of holding and ordering costs c. minimizes the unit purchase price d. may be a quantity below that at which one qualifies for that price e. minimizes the sum of holding, ordering, and product costs

e. minimizes the sum of holding, ordering, and product costs

62. Which category of inventory holding costs is much higher than average for rapid-change industries such as PCs and cell phones? a. housing costs b. material handling costs c. labor cost d. parts cost e. pilferage, scrap, and obsolescence

e. pilferage, scrap, and obsolescence