MKT 411 - Ch 7

The cost of a product is $5, and the carrying cost rate is 20%; the cost of processing an order is $45 and the annual demand is 1000. What is the economic order quantity (EOQ)? a. 300 b. 200 c. 20 d. 5 e. 25

a. 300

Which of the following would refer to the 80/20 rule when applied to the ABC inventory control system? a. 80 percent of the total annual $ usage is accounted for, by 20 percent of the items. b. 80 percent of the items account for 20 percent of the groups. c. 80 percent of the unit cost accounts for 20 percent of the items. d. 20 percent of the items account for 80 percent of the tasks. e. None of these choices are correct.

a. 80 percent of the total annual $ usage is accounted for, by 20 percent of the items.

The inventory turnover ratio shows how efficiently a firm is using its inventory to generate revenue. a. True b. False

a. True

Which of the following is true under the Periodic Review System? a. a higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system b. a lower level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system c. there are no discrepancies between physical inventory and the stock record d. it is more expensive to administer compared to the Continuous Review System e. the only uncertainty is the magnitude of demand during the delivery lead time

a. a higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system

If an item is ordered using its economic order quantity, the annual carrying cost should be: a. equal to the annual ordering cost. b. slightly less than the annual ordering cost. c. the square root of the annual ordering cost. d. twice the annual purchase price. e. None of these choices are correct.

a. equal to the annual ordering cost.

Which of the following is a disadvantage of carrying too much inventory? a. it creates an unnecessary waste of scarce resources. b. it reduces the need to conduct cycle counts. c. it leads to lower average finished goods inventories. d. it leads to higher annual inventory ordering costs. e. it increases the need to purchase items.

a. it creates an unnecessary waste of scarce resources.

If at the end of the year, the cost of revenue = $2,500, total revenue = $12,000 and inventory value = $2,000, the inventory turnover ratio would be: a. 0.375 b. 1.250 c. 0.208 d. 0.800 e. 2.667

b. 1.250

The College Bookstore sells a unique calculator to college students. The demand for this calculator is constant at 20 units per day. The lead time for this calculator is variable at an average of 9 days with a standard deviation of 2 days. Compute the statistical reorder point that results in a 95 percent in-stock probability. Choose the closest answer. a. 226 units b. 246 units c. 26 units d. 46 units e. 182 units

b. 246 units

Use the information below to calculate the number of orders per year when using the EOQ:Annual demand for an item is 43,000 unitsThe cost to place an order is $200The per unit cost of the item is $50.00The annual holding rate is 35%Choose the closest answer. a. 81 b. 49 c. 123 d. 202

b. 49

The ABC inventory control prioritizes dependent demand inventory items into three groups, A, B, and C. A items receive the smallest amount of safety stock, while C items typically have the most safety stock. a. True b. False

b. False

The four categories of inventory are raw materials, intermediate assemblies, work-in-progress and finished goods. a. True b. False

b. False

Classify the following inventory items as either A, B, or C items using the ABC inventory control system: Item # Annual Sales Unit Cost 1. 130 units $4 2. 400 units 15.3 3. 25 units 17 4 1320 units 1.25 5 90 units 2.10 a. item 1 (A), item 2 (B), item 3 (C), item 4 (A), item 5 (B) b. item 1 (C), item 2 (A), item 3 (C), item 4 (B), item 5 (C) c. item 1 (B), item 2 (A), item 3 (A), item 4 (C), item 5 (C) d. item 1 (B), item 2 (C), item 3 (B), item 4 (C), item 5 (A) e. item 1 (C), item 2 (B), item 3 (C), item 4 (A), item 5 (C)

b. item 1 (C), item 2 (A), item 3 (C), item 4 (B), item 5 (C)

Which of the following would be considered a dependent demand item? a. Retail customers b. Televisions c. Bicycle tires used to assemble a bicycle d. Furniture

c. Bicycle tires used to assemble a bicycle

If your company had an annual purchase cost of items equal to $2,000,000, an annual holding cost of $150,000 and an annual ordering cost of $50,000 this scenario would reveal that: a. Your order lot size was equal to the EOQ b. Your order size was lower than the EOQ c. Your order lot size was higher than the EOQ d. Nothing because there is insufficient information to discern where the EOQ would be.

c. Your order lot size was higher than the EOQ

The College Bookstore sells a unique calculator to college students. The demand for this calculator has a normal distribution with an average daily demand of 20 units and a standard deviation of 4 units per day. The lead time for this calculator is 9 days. Compute the statistical reorder point that results in a 95 percent in-stock probability. Choose the closest answer. a. 420 units b. 20 units c. 80 units d. 200 units e. 180 units

d. 200 units

When demand and delivery lead time are known and constant, daily demand = 8, purchase lead time = 5 days, and the purchase price = $20/unit, then the reorder point is: a. 2. b. 13. c. 32. d. 56. e. 40.

e. 40.

The primary purpose of the basic economic order quantity (EOQ) model is to: a. Minimize the sum of purchase cost and holding cost b. Maximize the customer service level c. Calculate the optimum safety stock level d. Calculate the reorder point, so that replenishments take place at the proper time e. None of these choices are correct.

e. None of these choices are correct.

Which of the following is NOT an assumption of the economic order quantity (EOQ) model? a. Quantity discounts are not possible. b. Demand is known, constant, and independent. c. The only variable costs are setup cost and holding cost. d. Lead time is known and constant. e. Production and use occur simultaneously.

e. Production and use occur simultaneously.

Which one of the following is NOT a reason for firms to carry inventory? a. To meet variations in product demand b. To take advantage of quantity discounts c. To allow for production scheduling flexibility d. To maintain independence of operations e. To increase production change/setup costs

e. To increase production change/setup costs