CHAPTER 12

Which of the following items is mostly likely managed using a single-period order model? A) Christmas trees B) canned food at the grocery store C) automobiles at a dealership D) metal for a manufacturing process E) gas sold to a gas station

A) Christmas trees

The fixed-period inventory system requires more safety stock than a fixed-quantity system because: A) a stockout can occur during the review period as well as during the lead time. B) this model is used for products that have large standard deviations of demand. C) this model is used for products that require very high service levels. D) replenishment is not instantaneous. E) setup costs and holding costs are large.

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

Q is to ________ systems as P is to ________ systems. A) fixed quantity, fixed period B) variable demand, constant demand C) variable lead time, variable demand D) variable quantity, variable period E) quality, price

A) fixed quantity, fixed period

In the basic EOQ model, if the cost of placing an order doubles, and all other values remain constant, the EOQ will: A) increase by about 41%. B) increase by 100%. C) increase by 200%. D) increase, but more data is needed to say by how much. E) either increase or decrease.

A) increase by about 41%.

The main trait of a single-period model is that: A) inventory has limited value after a certain period of time. B) it has the largest EOQ sizes. C) the order quantity should usually equal the expected value of demand. D) supply is limited. E) the cost of a shortage cannot be determined accurately.

A) inventory has limited value after a certain period of time.

Which of the following is a requirement of Q systems? A) perpetual inventory system B) constant order spacing C) variable lead time D) constant demand E) all of the above

A) perpetual inventory system

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 Amazon.com is FALSE? A) The company was opened by Jeff Bezos in 1995. B) The company was founded as, and still is, a "virtual" retailer with no inventory. C) The company is now a world-class leader in warehouse automation and management. D) The company uses both United Parcel Service and the U.S. Postal Service as shippers. E) Amazon obtains its competitive advantage through inventory management.

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

Cycle counting: A) is a process by which inventory records are verified once a year. B) eliminates annual inventory adjustments. C) provides a measure of inventory turnover. D) assumes that all inventory records must be verified with the same frequency. E) assumes that the most frequently used items must be counted more frequently.

B) eliminates annual inventory adjustments.

A product whose EOQ is 400 units experiences a 50% increase in demand. The new EOQ is: A) unchanged. B) increased by less than 50%. C) increased by 50%. D) increased by more than 50%. E) cannot be determined

B) increased by less than 50%.

A product whose EOQ is 40 units experiences a decrease in ordering cost from $90 per order to $10 per order. The revised EOQ is: A) three times as large. B) one-third as large. C) nine times as large. D) one-ninth as large. E) cannot be determined

B) one-third as large.

ABC analysis is based upon the principle that: A) all items in inventory must be monitored very closely. B) there are usually a few critical items, and many items that are less critical. C) an item is critical if its usage is high. D) more time should be spent on class "C" items because there are many more of them. E) as with grade distributions in many MBA courses, there should be more medium-level "B" items than either "A" or "C" items.

B) there are usually a few critical items, and many items that are less critical.

An advantage of the fixed-period inventory system is that: A) safety stock will be lower than it would be under a fixed-quantity inventory system. B) there is no physical count of inventory items when an item is withdrawn. C) no inventory records are required. D) orders usually are for smaller order quantities. E) the average inventory level is reduced.

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

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 no setup costs. E) Good personnel selection, training, and discipline are easy.

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

The two most basic inventory questions answered by the typical inventory model are: A) timing of orders and cost of orders. B) order quantity and cost of orders. C) timing of orders and order quantity. D) order quantity and service level. E) ordering cost and carrying cost.

C) timing of orders and order quantity.

Most inventory models attempt to minimize: A) the likelihood of a stockout. B) the number of items ordered. C) total inventory-based costs. D) the number of orders placed. E) the safety stock.

C) total inventory-based costs.

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 should have tighter physical inventory control than "B" or "C" items have. C) In ABC analysis, forecasting methods for "C" items may be less sophisticated than for "A" items. D) ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings. E) Criteria other than annual dollar volume, such as high holding cost or delivery problems, can determine item classification in ABC analysis.

D) ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.

All EXCEPT which of the following statements about ABC analysis are true? A) In ABC analysis, inventory may be categorized by measures other than dollar volume. B) ABC analysis categorizes on-hand inventory into three groups based on annual dollar volume. C) ABC analysis is an application of the Pareto principle. D) ABC analysis suggests that all items require the same high degree of control. E) ABC analysis suggests that there are the critical few and the trivial many inventory items.

D) ABC analysis suggests that all items require the same high degree of control.

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 noninstantaneous. B) Because receipt is noninstantaneous, some units are used immediately and 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 is 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 double, the number of orders per year 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 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 order quantity decisions 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 the 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 the annual demand, the less attractive a discount schedule will be.

If demand is not uniform and constant, then stockout risks can be controlled by: A) increasing the EOQ. B) spreading annual demand over more frequent, but smaller, orders. C) raising the selling price to reduce demand. D) adding safety stock. E) reducing the reorder point.

D) adding safety stock

Among the advantages of cycle counting is that it: A) makes the annual physical inventory more acceptable to management. B) does not require the detailed records necessary when annual physical inventory is used. C) does not require highly trained people. D) allows more rapid identification of errors and consequent remedial action than is possible with annual physical inventory. E) does not need to be performed for less expensive items.

D) allows more rapid identification of errors and consequent remedial action than is possible with annual physical inventory.

The purpose of safety stock is to: A) replace failed units with good ones. B) eliminate the possibility of a stockout. C) eliminate the likelihood of a stockout due to erroneous inventory tally. D) control the likelihood of a stockout due to variable demand and/or lead time. E) protect the firm from a sudden decrease in demand.

D) control the likelihood of a stockout due to variable demand and/or lead time

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) finished-goods inventory

D) safety stock inventory

The proper quantity of safety stock is typically determined by: A) using a single-period model. B) carrying sufficient safety stock so as to eliminate all stockouts. C) multiplying the EOQ by the desired service level. D) setting the level of safety stock so that a given stockout risk is not exceeded. E) minimizing total costs.

D) 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: A) it involves higher ordering costs than the fixed quantity inventory system. B) additional inventory records are required. C) the average inventory level is decreased. D) since there is no count of inventory during the review period, a stockout is possible. E) orders usually are for larger quantities.

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

Which of the following would NOT generally be a motive for a firm to hold inventories? A) to decouple various parts of the production process B) to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand C) to take advantage of quantity discounts D) to minimize holding costs E) to hedge against inflation

D) to minimize holding costs

What is the difference between P and Q inventory systems? A) order size B) order spacing C) maximum service level D) lead time length E) A and B

E) A and B

Which of the following is an element 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 costs.

E) All of the above are elements of inventory holding costs.

Which of the following is a function of inventory? A) to decouple various parts of the production process B) to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand 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 × L if safety stock is present. D) A shorter lead time implies a smaller 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 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.

Service level is: A) the probability of stocking out. B) the probability of not stocking out. C) something that should be minimized in retail. D) calculated as the cost of a shortage divided by (the cost of shortage + the cost of overage) for single-period models. E) B and D

E) B and D

ABC analysis divides on-hand inventory into three classes, generally based upon which of the following? A) item quality B) unit price C) the number of units on hand D) annual demand E) annual dollar volume

E) annual dollar volume

When quantity discounts are allowed, the cost-minimizing order quantity: A) is always an EOQ quantity. B) minimizes the sum of holding and ordering costs. C) minimizes the unit purchase price. D) may be a quantity below that at which one qualifies for that price. E) minimizes the sum of holding, ordering, and product costs.

E) minimizes the sum of holding, ordering, and product costs.

Which category of inventory holding costs has a much higher percentage than average for rapid-change industries such as PCs and cell phones? A) housing costs B) material handling costs C) labor cost D) investment costs E) pilferage, scrap, and obsolescence

E) pilferage, scrap, and obsolescence

Which of the following should be higher in P systems than Q systems? A) lead time B) demand C) order size D) order spacing E) safety stock

E) safety stock

ABC analysis classifies inventoried items into three groups, usually based on annual units or quantities used.

FALSE

ABC analysis is based on the presumption that carefully controlling all items is necessary to produce important inventory savings.

FALSE

According to the global company profile, Amazon.com's advantage in inventory management comes from its almost fanatical use of economic order quantity and safety stock calculations.

FALSE

At the economic order quantity, holding costs are equal to product costs.

FALSE

Cycle counting is an inventory control technique exclusively used for cyclical items.

FALSE

In the quantity discount model, the cost of acquiring goods (product cost) is not a factor in determining lot size.

FALSE

In the simple EOQ model, if the carrying cost were to double, the EOQ would also double

FALSE

Safety stock in inventory systems depends only on the average demand during the lead time.

FALSE

The EOQ model is best suited for items whose demand is dependent on other products.

FALSE

Which item to order and with which supplier the order should be placed are the two fundamental issues in inventory management.

FALSE

Work-in-process inventory is devoted to maintenance, repair, and operating materials.

FALSE

In the simple EOQ model, if annual demand were to increase, the EOQ would increase proportionately.

FALSE (because is independent)

Insurance and taxes on inventory are part of the costs known as setup or ordering costs

FALSE (it is called holding costs)

A major challenge in inventory management is to maintain a balance between inventory investment and customer service.

TRUE

If setup costs are reduced by substantial reductions in setup time, the production order quantity is also reduced.

TRUE

In ABC analysis, "A" items are the most tightly controlled.

TRUE

In cycle counting, the frequency of item counting and stock verification usually varies from item to item depending upon the item's classification.

TRUE

In the production order quantity model, inventory does not arrive in a single moment but flows in at a steady rate, resulting in a larger production/order quantity than in an otherwise identical EOQ problem.

TRUE

In the quantity discount model, it is possible to have a cost-minimizing solution where annual ordering costs do not equal annual carrying costs.

TRUE

One advantage of cycle counting is that it maintains accurate inventory records.

TRUE

One function of inventory is to take advantage of quantity discounts.

TRUE

Retail inventory that is unaccounted for between receipt and time of sale is known as shrinkage.

TRUE

Service level is the complement of the probability of a stockout.

TRUE

The demand for automobiles would be considered as independent demand.

TRUE

The fixed-period inventory model can have a stockout during the review period as well as during the lead time, which is why fixed-period systems require more safety stock than fixed-quantity systems.

TRUE

The reorder point is the inventory level at which action is taken to replenish the stocked item.

TRUE

Inventory that separates various parts of the production process performs a(n) ________ function.

decoupling

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

warehouse automation and management

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

RAW MATERIAL