Operations Ch. 13 Quiz Questions

Which model does not take into account the amount of inventory on hand?

EOQ Feedback: The EOQ factors are demand, ordering costs, and carrying costs.

Use of the fixed-interval model requires having a perpetual inventory system.

False Feedback: A periodic system would be used.

With the A-B-C approach, items which have high unit costs are classified as A items.

False Feedback: A-B-C is based on the product of unit cost and annual volume.

The economic order quantity cannot be used when holding costs are a percentage of purchase cost.

False Feedback: Refer to Example 3 in the textbook.

The objective of inventory management is to minimize holding costs.

False Feedback: The objective of inventory management is to minimize total cost, which includes ordering costs and sometimes purchase costs (e.g.,quantity discount models).

Companies that can successfully use the A-B-C approach can avoid using EOQ models.

False Feedback: They still need to determine how much to order.

When using EOQ ordering, the order quantity must be computed in every order cycle.

False Feedback: Unless demand, holding cost, or ordering cost changing, the order quantity will not change.

A fixed-interval ordering system would be used for items that have independent demand.

True

Suppose demand for an item is 500 units per year. It costs $100 to place an order for this item, and to hold one unit of this item in inventory for a year costs $10. Whatever order quantity is used, that quantity arrives in full two weeks after the order is placed. If an order quantity of 150 is used, annual holding costs will be approximately __________ annual ordering costs.

$417 more than

In an A-B-C system, B items typically represent about this percentage of items:

30 percent.

If average demand for an item is 21 units per day, safety stock is 4 units, and lead time is 2 days, the ROP will be:

46 Feedback: ROP = d x LT + SS = 21 x 2 + 4 = 46.

In the two-bin system, the quantity in the second bin is equal to the:

ROP Feedback: The second bin holds the reorder point quantity,

In the basic EOQ model, annual ordering cost and annual ordering cost are equal for the optimal order quantity.

True

The two basic questions in inventory management are how much to order and when to order.

True

Holding and ordering costs are inversely related to each other.

True Feedback: Changes in order quantity will cause one to increase and the other to decrease.

Using the EOQ model, if an item's holding cost increases, its order quantity will decrease.

True Feedback: It will decrease because holding cost is in the denominator of the EOQ formula.

A two-bin system is essentially a simple reorder point system.

True Feedback: Reorder when the first bin is empty.

A store that sells daily newspapers could use the single-period model for reordering.

True Feedback: The period is one day, and the news in "perishable" beyond one day.

Increasing the order quantity so that it is slightly above the EOQ would not increase the total cost by very much.

True Feedback: The total cost curve is flat to the right of the EOQ.

Inventory might be held to take advantage of order cycles.

True Feedback: Using an economic order quantity is an example of this.

Using the basic EOQ model, if the ordering cost doubles, the order quantity will be

about 71% of its former value Feedback: Because S in under the square root sign, multiplying its value be 2 will increase the EOQ by the square root of 2, which is .707.

Suppose the EOQ model is in use. Which of the following would typically cause the optimal order quantity to decrease?

an increase in holding cost

A stockout occurs when demand during lead time is __________ the __________.

greater than; reorder point

In A-B-C inventory analysis, the challenge is to clarify which items:

have the highest total periodic cost.

If a decrease in unit price causes the average demand rate to increase, which one of these would not increase?

lead time Feedback: Every other choice is a function of demand.

Setup costs are analogous to which one of these costs?

ordering Feedback: Both setup and ordering costs are in the numerator of the quantity formula; and both are independent of order size.

The two basic questions in inventory management involve __________ and __________.

quantity; timing

Other things beings equal, an increase in lead time for inventory orders will result in an increase in the:

reorder point. Feedback: Quantity models do not involve lead time.

Suppose we use the economic order quantity when we should be using the economic production quantity. As a consequence, our annual __________ cost will be much higher than it should be.

setup

Which product would usually be bought on an ROP basis?

sugar Feedback: Buy more went the quantity on hand gets low.

Which product is usually bought on a fixed-interval basis?

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