Bus140 - Final exam Chapter 12

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

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 proper quantity of safety stock is typically determined by

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

The two most basic inventory questions answered by the typical inventory model are

timing and quantity of orders

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

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

how many units should be ordered

Cycle counting

provides a measure of inventory accuracy

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

ABC analysis is based on the principle that

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

An advantage of the fixed-period inventory system is that

there is no physical count of inventory items when an item is withdrawn

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 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 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

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

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

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 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? a. One hundred is the reorder point, and 14 is the order quantity. b. Fourteen is the reorder point, and 100 is the order quantity. c. The number 100 is a function of demand during lead time. d. Fourteen is the safety stock, and 100 is the reorder point. e. None of the above is true.

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

Which of the following statements regarding the production order quantity model is TRUE? a. It applies only to items produced in the firm's own production departments. b. It relaxes the assumption that all the order quantity is received at one time. c. It relaxes the assumption that the demand rate is constant. d. It minimizes the total production costs. e. It minimizes inventory.

b. It relaxes the assumption that all the order quantity is received at one time.

Which of the following statements regarding control of service inventories is TRUE? a. Service inventory is a fictional concept, because services are intangible. b. Service inventory needs no safety stock, because there's no such thing as a service stockout. c. Effective control of all goods leaving the facility is one applicable technique. d. Service inventory has carrying costs but not setup costs. e. All of the above are true.

c. Effective control of all goods leaving the facility is one applicable technique.

Which of the following statements about ABC analysis is FALSE? a. ABC analysis is based on the presumption that controlling the few most important items produces the vast majority of inventory savings. b. In ABC analysis, "A" Items are tightly controlled, have accurate records, and receive regular review by major decision makers. c. In ABC analysis, "C" Items have minimal records, periodic review, and simple controls. d. ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings. e. All of the above statements are true.

d. 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? a. The production order quantity model is appropriate when the assumptions of the basic EOQ model are met, except that receipt is non instantaneous. b. Because receipt is non instantaneous, some units are used immediately, not stored in inventory. c. Average inventory is less than one-half of the production order quantity. d. All else equal, the smaller the ratio of demand rate to production rate, the larger is the production order quantity. e. None of the above is false.

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

Which of the following statements about the basic EOQ model is FALSE? a. If the setup cost were to decrease, the EOQ would fall. b. If annual demand were to increase, the EOQ would increase. c. If the ordering cost were to increase, the EOQ would rise. d. If annual demand were to double, the EOQ would also double. e. All of the above statements are true.

d. If annual demand were to double, the EOQ would also double.

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

d. Production and use can occur simultaneously.

Which of the following statements about quantity discounts is FALSE? a. The cost-minimizing solution may or may not be where annual holding costs equal annual ordering costs. b. In inventory management, item cost becomes relevant to inventory decisions only when a quantity discount is available. c. If carrying costs are expressed as a percentage of value, EOQ is larger at each lower price in the discount schedule. d. The larger annual demand, the less attractive a discount schedule will be. e. The smaller the ordering cost, the less attractive a discount schedule will be.

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

All of the following statements about ABC analysis are true EXCEPT a. inventory may be categorized by measures other than dollar volume b. it categorizes on-hand inventory into three groups based on annual dollar volume c. it is an application of the Pareto principle d. it states that all items require the same degree of control e. it states that there are the critical few and the trivial many inventory items

d. it states that all items require the same degree of control

Which of the following is NOT one of the four main types of inventory? a. raw material inventory b. work-in-process inventory c. maintenance/repair/operating supply inventory d. safety stock inventory e. All of these are main types of inventory.

d. safety stock inventory

Which of the following would NOT generally be a motive for a firm to hold inventories? a. to decouple or separate parts of the production process b. to provide a stock of goods that will provide a selection for customers c. to take advantage of quantity discounts d. to minimize holding costs e. All of the above are functions of inventory.

d. to minimize holding costs

The primary purpose of the basic economic order quantity model shown below is a. to calculate the reorder point, so that replenishments take place at the proper time b. to minimize the sum of carrying cost and holding cost c. to maximize the customer service level d. to minimize the sum of setup cost and holding cost e. to calculate the optimum safety stock

d. to minimize the sum of setup cost and holding cost

Which of the following are elements of inventory holding costs? a. housing costs b. material handling costs c. investment costs d. pilferage, scrap, and obsolescence e. All of the above are elements of inventory holding cost.

e. All of the above are elements of inventory holding cost.

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.

e. All of the above are functions of inventory.

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.

e. All of the above are true.

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 the 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.

e. All of the above statements are true.

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 assumption of the economic order quantity model shown below, the average amount of inventory on hand

is one-half of the economic order quantity

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

minimizes the sum of holding, ordering, and product costs

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

Most inventory models attempt to minimize

total inventory based costs