Week 7

Which of the following statements about the A-B-C approach is/are true? Its purpose is to identify inventory items that are the most important to the business. Approximately 10% to 20% of items account for about 60% to 70% of annual dollar value. C items are the most closely managed, while A items are least important. It is intended to help firms allocate control efforts based on the relative importance of items in inventory.

Approximately 10% to 20% of items account for about 60% to 70% of annual dollar value. It is intended to help firms allocate control efforts based on the relative importance of items in inventory.

Which of these is NOT a factor that determines the appropriate amount of safety stock? Average quantity discount Lead time variability Desired service level Average demand rate

Average quantity discount

When carrying costs are expressed as a percentage of price, what happens to carrying costs as the quantity discount increases? Carrying costs per unit rises Carrying costs per unit stays the same Carrying costs per unit decline

Carrying costs per unit decline

Which of the following is not a way inventory affects performance measures? Return on investment Ratio of inventory to sales Dividends

Dividends

At which point in an order cycle is the risk of a stockout occurring the greatest?

During the lead time for an order that has been placed

Which of the following statements about inventory costs is/are true? Shortage costs occur when there is not enough demand. Holding costs can include the cost of insurance. Purchase and ordering costs are the same. Ordering and setup costs are treated the same.

Holding costs can include the cost of insurance. Ordering and setup costs are treated the same.

What are the key questions for management concerning cycle counting? (Select all that apply.) Where should the inventory be stored? What inventory should be counted? How much accuracy is needed? Who should count it? When should cycle counting be performed?

How much accuracy is needed? Who should count it? When should cycle counting be performed?

Which of the following is/are the basic issue/s of inventory management? From which supplier to order How much to order Which carrier to use to deliver the order When to order

How much to order When to order

Which of the following types of inventory are items that are ready to be sold? Dependent-demand items Independent-demand items Raw materials Work-in-process items

Independent-demand items

Which of the following statements about inventory management is/are true? Inventory managers must decide how much to order. The decision when to order need not be made, it's automated in the system. Excess inventory is preferable to too little inventory. One of the goals is to keep inventory costs within reasonable bounds. One of the goals is to achieve good customer service.

Inventory managers must decide how much to order. One of the goals is to keep inventory costs within reasonable bounds. One of the goals is to achieve good customer service.

Which statement is true for the economic production quantity (EPQ) model? It is used only in jobs shops. It is used when production occurs in batches. Like EOQ, all orders are received in a single delivery.

It is used when production occurs in batches.

Which statement is true for the economic production quantity (EPQ) model? Like EOQ, all orders are received in a single delivery. It is used when production occurs in batches. It is used only in jobs shops.

It is used when production occurs in batches.

Which of the following are assumptions of the EOQ model? Quantity discounts are available. Lead time can be variable. Lead time is known. Annual demand is known. It works for multiple products at once.

Lead time is known. Annual demand is known.

Which of the following is correct regarding inventory monitoring under the fixed-order-interval-model? Inventory monitoring is handled by the vendor Must monitor inventory constantly to avoid a stockout Only periodic checks of inventory required

Only periodic checks of inventory required

Which of the following statements about the EOQ model is/are true? As Q decreases, the annual ordering cost decreases. Orders are placed when there is just enough inventory left to cover the lead time demand. The EOQ minimizes the sum of annual ordering and holding costs. As Q decreases, the annual holding cost increases.

Orders are placed when there is just enough inventory left to cover the lead time demand. The EOQ minimizes the sum of annual ordering and holding costs.

________ inventory systems take physical inventory counts at fixed intervals and decide how much to reorder of each item.

Periodic

______ inventory systems continuously keep track of changes to the inventory system and a fixed quantity is ordered when the amount on hand reaches a predetermined level.

Perpetual

Which of the following are considered types of inventory in a manufacturing facility? Raw materials In-transit goods Finished goods Maintenance and repairs Furniture used by employees Work-in-process

Raw materials Work-in-process Finished goods Maintenance and repairs In-transit goods

Which type of inventory is held to reduce the probability of a stockout? Speculative stock Cycle stock Safety stock

Safety stock

In the single-period model, what is the key to determining the optimal stocking level? Safety stock Service level Stockout level

Service level

_______ cost is incurred by a firm when demand for inventory exceeds supply.

Shortage

Which of the following statements about inventory control systems is/are true? An advantage of perpetual systems is the need to continuously keep records. An advantage of periodic systems is the lack of safety stock required. Some businesses are moving towards using RFID tags to track inventory. Orders in two-bin systems may not be placed at the right time.

Some businesses are moving towards using RFID tags to track inventory. Orders in two-bin systems may not be placed at the right time.

Which is the definition of holding cost in the EOQ model? The cost for receiving inventory. The cost to carry a single unit in inventory for a length of time. The cost to carry all inventory for a length of time. The cost when demand exceeds the supply of inventory.

The cost to carry a single unit in inventory for a length of time.

What is the definition of ordering cost? The cost of placing an order, including material costs. The cost of setting up a production run. The fixed cost of placing and receiving a single order. The amount paid for inventory.

The fixed cost of placing and receiving a single order.

Which of the following statements about the economic production quantity is/are not true? Inventory "trickles in" as it is produced. The maximum inventory level is the same as the EPQ. Unlike the EOQ model, there are no ordering costs. The assumptions are the same as in the EOQ model.

The maximum inventory level is the same as the EPQ. The assumptions are the same as in the EOQ model.

What does 'z' represent in the safety stock formula? The stockout risk a manager is willing to accept The service level a supplier is willing to accept The reorder point a customer is willing to accept

The stockout risk a manager is willing to accept

What triggers orders in a fixed-order-interval model? Storage space freed up in a warehouse. The time since the last order An inventory level A large order received from a customer

The time since the last order

Which of the following is NOT a normal function of inventory? To take advantage of quantity discounts. To hedge against price increases. To meet anticipated demand. To provide an investment vehicle. To decouple operations.

To provide an investment vehicle.

Which of the following statements about quantity discount models is/are true? If H is fixed, the cost curves have different minimum points. Total cost must include product cost to evaluate options. When H is variable, the cost curves have the same minimum point. The optimal quantity may not be the same as the EOQ.

Total cost must include product cost to evaluate options. The optimal quantity may not be the same as the EOQ.

Which of the following statements about inventory control systems is/are not true? UPCs and point-of-sale systems do not work well together. An advantage of periodic systems is the lack of safety stock required. A two-bin system is a very simple way of tracking and ordering inventory Perpetual inventory systems are always able to accurately report inventory levels.

UPCs and point-of-sale systems do not work well together. An advantage of periodic systems is the lack of safety stock required. Perpetual inventory systems are always able to accurately report inventory levels.

The overall objective of inventory management is to achieve satisfactory levels of ______ while keeping inventory ______ reasonable. customer service; costs costs; discounts discounts; costs customer service; stockout

customer service; costs

____ stock is the amount of inventory required to meet expected demand.

cycle

A service level of 95% implies a 95% probability that __________. customers will be satisfied with a firm's products demand will not exceed supply during leadtime the sales forecast is accurate

demand will not exceed supply during leadtime

In order to rank inventory items in an A-B-C analysis, we arrange annual dollar values for all items in ______. ascending order random order descending order

descending order

In the economic production quantity (EPQ) model, the larger the production run size, the ______ the number of runs needed per year, and the _______ the annual setup cost.

fewer; lower

With inventory turnover, a _____ ratio is better, because that implies more efficient use of inventory.

higher

Because firms tend to have about 30 percent of current assets invested in inventory, a reduction in inventories can result in a significant ______. increase in total sales decrease in total sales decrease in ROI increase in ROI

increase in ROI

How much to order, and when to order, are the two basic issues in an _______. cycle counting model inventory ordering policy A-B-C- analysis

inventory ordering policy

What does LT represent in the reorder point formula?

lead time

MRO stands for ______ inventory.

maintenance and repairs

Service level is the _____ that demand will not exceed supply. Service level = 100% -_____ _____.

risk stockout rate

In the economic production quantity (EPQ) model, ______ costs are analogous to ordering costs. carrying setup total

setup

One of the reasons a firm carries inventory is to ______, that is, to achieve constant output and use inventory to meet overly high requirements during seasonal periods. take advantage of quantity discounts decouple operations smooth production requirements

smooth production requirements

Inventory is a ____ or ____ of goods.

stock, store

True or false: Differences between the fixed-order interval and fixed-quantity model only become apparent when variability exists in demand or lead time.

true

If annual demand is 10,000 units and 9,000 units of demand was filled directly from inventory, with shortages totaling 1,000 units, the annual fill rate is ______. 90% 10% 99%

90%

The ______ approach classifies inventory items according to a measure of importance, such as annual dollar value.

A-B-C

Which of the following statements about inventory turnover is not true? Turnover is the ratio of sales to inventory. The higher the profit margins, the lower turnover can be. Generally, the higher the turnover, the better.

Turnover is the ratio of sales to inventory.

A stock or store of goods is _______.

inventory