Ch.12 Inventory Managment

For a certain item, the cost-minimizing order quantity obtained with the basic EOQ model was 200 units and the total annual inventory (carrying and setup) cost was $600. The inventory carrying cost per unit per year for this item is

$3.00

A product has demand of 4000 units per year. Ordering cost is $20 and holding cost is $4 per unit per year. The EOQ model is appropriate. The cost-minimizing solution for this product will cost _____ per year in total annual inventory costs.

$800

A certain type of computer costs $1,000, and the annual holding cost is 25%. Annual demand is 10,000 units, and the order cost is $150 per order. What is the approximate economic order quantity?

110

If daily demand is normally distributed with a mean of 15 and standard deviation of 5, and lead time is constant at 4 days, 90 percent service level will require safety stock of approximately

13 units

In the basic EOQ model, if D=6000 per year, S=$100, H=$5 per unit per month, the economic order quantity is approximately

141

In a safety stock problem where both demand and lead time are variable, demand averages 150 units per day with a daily standard deviation of 16, and lead time averages 5 days with a standard deviation of 1 day. The standard deviation of demand during lead time is approximately

154 units

The assumptions of the production order quantity model are met in a situation where annual demand is 3650 units, setup cost is $50, holding cost is $12 per unit per year, the daily demand rate is 10 and the daily production rate is 100. The production order quantity for this problem is approximately

184

A product has demand of 4000 units per year. Ordering cost is $20 and holding cost is $4 per unit per year. The cost-minimizing solution for this product is to order

200 units per order

A production order quantity problem has daily demand rate = 10 and daily production rate = 50. The production order quantity for this problem is approximately 612 units. The average inventory for this problem is approximately

245

A specific product has demand during lead time of 100 units, with a standard deviation of 25 units. What safety stock (approximately) provides a 95% service level?

41

If daily demand is constant at 10 units per day, and lead time averages 12 days with a standard deviation of 3 days, 95 percent service requires a safety stock of approximately

49 units

______________ is a method for dividing on-hand inventory into three classifications based on annual dollar volume.

ABC analysis

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 these statements about the production order quantity model is false?

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

Which of the following are elements of inventory holding costs?

All of the above are elements of inventory holding cost.

Which of the following statements regarding control of service inventories is true?

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?

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

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.

_____________ is the time between placement and receipt of an order.

Lead time

Which of the following is not an assumption of the economic order quantity model shown below?

Production and use can occur simultaneously.

_____________ inventory is material that is usually purchased, but has yet to enter the manufacturing process.

Raw material

_____________ is extra stock that is carried to serve as a buffer.

Safety stock

____________ is the complement of the probability of a stockout.

Service level

Which of the following statements regarding Amazon.com is false?

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

Which of the following statements about quantity discounts is false?

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

The fixed-period inventory model requires more safety stock than the fixed-quantity models because

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

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.

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.

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.

If demand is not uniform and constant, then stockout risks can be controlled by

adding safety stock

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

An advantage of the fixed-period inventory system is that

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

If the standard deviation of demand is six per week, demand is 50 per week, and the desired service level is 95%, approximately what is the statistical safety stock?

cannot be determined without lead time data

The purpose of safety stock is to

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

The EOQ model with quantity discounts attempts to determine

d. how many units should be ordered

When demand is constant and lead time is variable, safety stock computation requires three inputs: the value of z, _____________, and the standard deviation of lead time.

daily demand

Inventory that separates various parts of the production process performs a ___________ function.

decoupling

In the production order quantity model, the fraction of inventory that is used immediately and not stored is represented by the ratio of_____________.

demand rate to production rate

If a safety stock problem includes parameters for average daily demand, standard deviation of demand, and lead time, then _____________ is variable and ___________ is constant.

demand, lead time

A(n) ____________ system triggers inventory ordering on a uniform time frequency

fixed-period

ABC analysis is based upon the principle that

here are usually a few critical items, and many items which are less critical

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%

If the actual order quantity is the economic order quantity in a problem that meets the assumptions of the economic order quantity model shown below, the average amount of inventory on hand

is one-half of the economic order quantity

All of the following statements about ABC analysis are true except

it states that all items require the same degree of control

For a given level of demand, annual holding cost is larger as the order quantity is _____________.

larger

When quantity discounts are allowed, the cost-minimizing order quantity

minimizes the sum of holding, ordering, and product costs

In an economic order quantity problem, the total annual cost curve is at its _____________ where holding costs equal setup costs.

minimum

Demand for dishwasher water pumps is 8 per day. The standard deviation of demand is 3 per day, and the order lead time is four days. The service level is 95%. What should the reorder point be?

more than 40

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

Which category of inventory holding costs is much higher than average for rapid-change industries such as PCs and cell phones?

pilferage, scrap, and obsolescence

Cycle counting

provides a measure of inventory accuracy

In a quantity discount problem, if the savings in product cost is smaller than the increase in the sum of setup cost and holding cost, the discount should be _____________.

rejected or refused

A(n) __________ model gives satisfactory answers even with substantial variations in its parameters.

robust

Which of the following is not one of the four main types of inventory?

safety stock inventory

The proper quantity of safety stock is typically determined by

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

A disadvantage of the fixed-period inventory system is that

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

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

The primary purpose of the basic economic order quantity model shown below is

to minimize the sum of setup cost and holding cost

Most inventory models attempt to minimize

total inventory based costs

Amazon's original concept of operating without inventory has given way to a model in which Amazon is a world-class leader in _______________.

warehouse management and automation

_____________ is a continuing reconciliation of inventory with inventory records.

Cycle counting