Chapter 12: Inventory Management

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.

smooth production requirements

Which of the following is not a way inventory affects performance measures?

Dividends

Which of the following is correct regarding inventory monitoring under the fixed-order-interval-model?

Only periodic checks of inventory required

Which of the following statements about inventory costs is/are true?

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

Which of the following statements about the EOQ model is/are true?

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 is/are the basic issue/s of inventory management?

When to order How much to order

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 ROI

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

How much to order, and when to order, are the two basic issues in an _______.

inventory ordering policy

A stock or store of goods is _______.

inventory

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

A-B-C

Which of the following are assumptions of the EOQ model?

Annual demand is known. Lead time is known.

Which of the following statements about the A-B-C approach is/are true?

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. Its purpose is to identify inventory items that are the most important to the business.

What varies in a fixed-order-interval (FOI) model?

The amount of each order

Which of the following statements about the economic production quantity is/are not true?

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

Which is the definition of holding cost in the EOQ model?

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

Which of the following is not a reason for using the fixed-order-interval model?

The firm desires to minimize inventory requirements.

The overall objective of inventory management is to achieve satisfactory levels of ______ while keeping inventory ______ reasonable.

customer service; costs

Which is the correct formula for the total cost in the quantity discount model?

(Q/2)H + (D/Q)S + PD

Which of the following is the correct formula for the service level in the single period model with continuous stocking levels?

Cs/Cs+Ce

Which of the following is the correct formula for the service level in the single period model with discrete stocking levels?

Cs/Cs+Ce

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

Cycle

Which of the following statements about discrete stocking levels in the single-period model is/are true?

If the SL is equal to one of the probabilities, both that level and the next higher one have the same minimum cost. After finding the optimal service level, pick the next highest stocking level.

Which of the following statements about inventory management is/are true?

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

Which of the following statements about the fixed-order-interval model is/are true?

It can produce savings in shipping costs. The order point is fixed.

Which statement is true for the economic production quantity (EPQ) model?

It is used when production occurs in batches.

Which of the following statements about the single-period model is/are true?

It minimizes costs of shortage and excess. It is used for ordering items that have a limited lifespan.

Which of the following statements about reorder point ordering is/are true?

Safety stock is required if demand is variable. Safety stock is required if lead time is variable.

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

Service level

In the single-period model, ______ cost is the unrealized profit per unit, while ______ cost is the difference between the purchase price and salvage value of an item.

Shortage, Excess

Inventory is a ______ or ______ of goods.

Stock, store

What triggers orders in a fixed-order-interval model?

The time since the last order

If both the demand rate and lead time are constant, how do the fixed-interval model and the fixed-quantity model compare?

They function identically

Which of the following is NOT a normal function of inventory?

To provide an investment vehicle.

Which of the following statements about quantity discount models is/are true?

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