Chapter 12 OM

Match the following terms from the equation to find the order size in a fixed-interval model with their meaning. 1) Q 2) d bar 3) OI 4) LT 5) (OI + LT) 6) σd 7) A A) Order quantity B) Standard deviation C) Order interval D) Expected demand during protection interval E) Amount on hand at reorder time F) Average demand G) Lead time

1 - A 2 - F 3 - C 4 - G 5 - D 6 - B 7 - E

Place the following steps for finding the EOQ in a quantity discount model with variable H in the correct order. A) The optimal point is the quantity that yields the lowest total cost. B) Start with the lowest price. Compute the minimum point for each price range until you find a feasible point. C) Otherwise, compare total costs at the price breaks for all lower prices with the total coat of the feasible minimum point. D) If the minimum point at the lowest cost is feasible, it is the optimal solution

1) B 2) D 3) C 4) A

Place the following steps for the A-B-C approach in the correct order. A) Arrange items in descending order by annual dollar value B) Multiple annual volume by unit price for each item C) Classify the items as A, B, or C

1-B 2-A 3-C

In a fixed-order-interval model, larger-than-expected demand causes which of the following situations to occur? A) Larger order size than expected B) No change compared to the expected order C) Longer order cycle than expected D) Shorter order cycle than expected

A

In the economic production quantity (EPQ) model, the larger the production run size, the ______ the number of runs needed per year, and the _______ the annual setup cost. A) fewer; lower B) more; lower C) more; higher D) fewer; higher

A

In the single-period model, what is the key to determining the optimal stocking level? A) Service level B) Stockout level C) Safety stock

A

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. A) Smooth production requirements. B) Decouple operations C) Take advantage of quantity discounts.

A

Which is the correct formula for the annual ordering cost in the EOQ model? A) (D/Q)S B) (D/Q)H C) (Q/2)H D) (Q/2)H + (D/Q)S E) D/Q F) √2DSH2DSH G) Q/D

A

Which is the correct formula for the reorder point with no variability? A) d x LT B) d x LT + Safety stock C) zσdLT

A

Which is the correct formula for the total cost in the quantity discount model? A) (Q/2)H + (D/Q)S + PD B) (Q/2)H + (D/Q)S C) (Imax/2)H + (D/Q)S D) √2DSH

A

Which of the following is NOT a normal function of inventory? A) To provide an investment vehicle B) To take advantage of quantity discounts C) To meet anticipated demand D) To hedge against price increases E) To decouple operations

A

Which of the following is not a reason for using the fixed-order-interval model? A) The firm desires to minimize inventory requirements. B) A supplier's policy encourages orders at fixed intervals. C) The firm's operation does not lend itself to continuous monitoring. D) The firm can save on shipping costs by grouping orders from the same supplier.

A

Which of the following is not a way inventory affects performance measures? A) Dividends B) Return on investment C) Ratio of inventory to sales

A

Which of the following is the correct formula for the order quantity in the fixed-order-interval model? A) d bar(OI + LT) + zσd√OI+LTOI+LT - A B) d bar(OI + LT) - zσd√OI+LTOI+LT + A C) d bar(OI - LT) + zσd√OI−LTOI-LT - A D) d bar(LT - OI) + zσd√LT−OILT-OI - A

A

Which of these is NOT a factor that determines the appropriate amount of safety stock? A) Average quantity discount B) Desired service level C) Average demand rate D) Lead time variability

A

______ is a physical count of items in inventory used to reduce the discrepancies between inventory records and the actual items on hand. A) Cycle counting B) Bar code scanning C) Perpetual counting

A

_______ cost is incurred by a firm when demand for inventory exceeds supply. A) Shortage B) Purchase C) Setup

A

________ inventory systems take physical inventory counts at fixed intervals and decide how much to reorder of each item. A) Periodic B) Perpetual C) Personal

A

Select all that apply Which of the following statements about inventory control systems is/are true? A) Orders in two-bin systems may not be placed at the right time. B) Some businesses are moving towards using RFID tags to track inventory. C) An advantage of periodic systems is the lack of safety stock required. D) An advantage of perpetual systems is the need to continuously keep records.

A and B

Select all that apply Which of the following statements about the EOQ model is/are true? A) Orders are placed when there is just enough inventory left to cover the lead time demand. B) The EOQ minimizes the sum of annual ordering and holding costs. C) As Q decreases, the annual holding cost increases. D)As Q decreases, the annual ordering cost decreases.

A and B

Select all that apply Which of the following statements about the single-period model is/are true? A) It minimizes costs of shortage and excess. B) It is used for ordering items that have a limited lifespan. C) Excess cost cannot exceed the purchase price of an item. D) Excess cost is the cost of having excess demand. E) Shortage cost is the cost of having too little demand.

A and B

Select all that apply Which of the following statements about inventory costs is/are true? A) Holding costs can include the cost of insurance. B) Shortage costs occur when there is not enough demand. C) Ordering and setup costs are treated the same. D) Purchase and ordering costs are the same.

A and C

Select all that apply Which of the following statements about the economic production quantity is/are not true? A) The assumptions are the same as in the EOQ model. B) Unlike the EOQ model, there are no ordering costs. C) The maximum inventory level is the same as the EPQ. D) Inventory "trickles in" as it is produced.

A and C

Select all that apply Which of the following statements about reorder point ordering is/are true? A) Safety stock is required if demand is variable. B) It is not needed with EOQ models. C) It is necessary for single period models. D) Safety stock is required if lead time is variable.

A and D

Match the following inventory categories with the APICS recommendations for accuracy. 1) +- 1 percent 2) +- .2 percent 3) +-5 percent

A) - 2 B) - 1 C) - 3

Select all that apply Which of the following statements about inventory control systems is/are not true? A) UPCs and point-of-sale systems do not work well together. B) Perpetual inventory systems are always able to accurately report inventory levels. C) A two-bin system is a very simple way of tracking and ordering inventory D) An advantage of periodic systems is the lack of safety stock required.

A, B and D

Select all that apply Which of the following are considered types of inventory in a manufacturing facility? A) Raw Materials B) In-transit goods C) Work-in-progress D) Furniture used by employees E) Finished goods F) Maintenance and repairs

A, B, C, E and F

Select all that apply Which of the following statements about inventory management is/are true? A) One of the goals is to keep inventory costs within reasonable bounds. B) The decision when to order need not be made, it's automated in the system. C) Inventory managers must decide how much to order. D) One of the goals is to achieve good customer service. E) Excess inventory is preferable to too little inventory.

A, C and D

Select all that apply Which of the following statements about inventory management is/are true? A) One of the goals is to keep inventory costs within reasonable bounds. B) The decision when to order need not be made, it's automated in the system. C) Excess inventory is preferable to too little inventory. D) One of the goals is to achieve good customer service. E) Inventory managers must decide how much to order.

A, D and E

Inventory is a ___________ or _____________ of goods

Amount; Storage

A stock or store of goods is ____________. A) Work-in-process B) Inventory C) Raw Materials

B

Because firms tend to have about 30 percent of current assets invested in inventory, a reduction in inventories can result in a significant _____. A) Decrease in total sales B) Increase in ROI C) Decrease in ROI D) Increase in total sales

B

How much to order, and when to order, are the two basic issues in an _______. A) A-B-C- analysis B) inventory ordering policy C) cycle counting model

B

If both the demand rate and lead time are constant, how do the fixed-interval model and the fixed-quantity model compare? A) Inventory holding costs are higher for the fixed-interval model B) They function identically C) Inventory holding costs are higher for the fixed-quantity model D) The risk of a stockout is higher with the fixed-quantity model.

B

In order to rank inventory items in an A-B-C analysis, we arrange annual dollar values for all items in ______. A) random order B) descending order C) ascending order

B

In the economic production quantity (EPQ) model, ______ costs are analogous to ordering costs. A) total B) setup C) carrying

B

MRO stands for ___________ inventory. A) multiple repeat orders B) Maintenance and repairs C) Manufacturing and retail

B

What does 'z' represent in the safety stock formula? A) The service level a supplier is willing to accept B) The stockout risk a manager is willing to accept C) The reorder point a customer is willing to accept

B

What does the formula zσdLT represent? A) Reorder point for variable demand during lead time B) Safety stock given variability in demand during lead time. C) Safety stock given variability in demand and supplier lead time.

B

What triggers orders in a fixed-order-interval model? A) Storage space freed up in a warehouse. B) The time since the last order C) A large order received from a customer D) An inventory level

B

Which is the correct formula for the annual holding cost in the EOQ model? A) √2DSH2DSH B) (Q/2)H C) (D/Q)H D) (Q/2)H + (D/Q)S E) Q/D F) (D/Q)S G) D/Q

B

Which of the following is NOT a normal function of inventory? A) To protect against stock outs B) To take advantage of existing storage space C) To permit normal operations D) To smooth production requirements E) To take advantage of quantity discounts

B

Which of the following is the correct formula for the service level in the single period model with continuous stocking levels? A) Ce/CS+Ce B) Cs/Cs+Ce C) Cs/Cs-Ce D) Ce/Ce-Cs

B

Which of the following statements about inventory turnover is not true? A) Generally, the higher the turnover, the better. B) Turnover is the ratio of sales to inventory. C) The higher the profit margins, the lower turnover can be.

B

Which of the following types of inventory are items that are ready to be sold? A) Work-in-process items B) Independent-demand items C) Dependent-demand items D) Raw materials

B

Select all that apply Which of the following are assumptions of the EOQ model? A) Lead time can be variable. B) Lead time is known. C) Annual demand is known. D) It works for multiple products at once. E) Quantity discounts are available.

B and C

Select all that apply Which of the following is/are the basic issue/s of inventory management? A) From which supplier to order B) How much to order C) When to order D) Which carrier to use to deliver the order

B and C

Select all that apply Which statement about holding costs, also known as carrying costs, are correct? A) Carrying costs can be negative. B) Carrying costs can be stated as a percentage of item price, C) Carrying costs can be stated as a constant. D) Carrying costs are assumed to be zero.

B and C

Select all that apply Which of the following statements about the fixed-order-interval model is/are true? A) The order quantity is fixed. B) It can produce savings in shipping costs. C) It requires continuous inventory monitoring. D) If demand is higher than average, the time between orders will decrease. E) The order point is fixed.

B and E

Select all that apply Which of the following statements about the A-B-C approach is/are true? A) C items are the most closely managed, while A items are least important. B) It is intended to help firms allocate control efforts based on the relative importance of items in inventory. C) Its purpose is to identify inventory items that are the most important to the business. D) Approximately 10% to 20% of items account for about 60% to 70% of annual dollar value.

B, C and D

Select all that apply What are the key questions for management concerning cycle counting? A) What inventory should be counted? B) Who should count it? C) Where should the inventory be stored? D) How much accuracy is needed? E) When should cycle counting be performed?

B, D and E

A service level of 95% implies a 95% probability that __________. A) he sales forecast is accurate B) customers will be satisfied with a firm's products C) demand will not exceed supply during leadtime

C

At which point in an order cycle is the risk of a stockout occurring the greatest? A) After a large customer order has been fulfilled B) At the beginning of the order cycle C) During the lead time for an order that has been placed D) In the middle of the order cycle

C

If annual demand is 10,000 units and 9,000 units of demand was filled directly from inventory, with shortages totaling 1,000 units, the annual fill rate is ______. A) 99% B) 10% C) 90%

C

One reason firms carry inventory is to ______, that is, to use inventory as a buffer between successive internal operations to avoid disruption in the event of equipment breakdowns or accidents. A) permit operations B) hedge against price increases C) decouple operations

C

The ______ approach classifies inventory items according to a measure of importance, such as annual dollar value. A) MRP B) A-D-V C) A-B-C

C

The inventory models in this chapter relate primarily to ______ items, that is, items that are ready to be sold or used. A) Dependent-demand B) Raw Material C) Independent-demand D) In-transit

C

What does LT represent in the reorder point formula? A) Length B) Long term C) Lead time

C

What varies in a fixed-order-interval (FOI) model? A) The amount of safety stock B) The timing between orders C) The amount of each order

C

When carrying costs are expressed as a percentage of price, what happens to carrying costs as the quantity discount increases? A) Carrying costs per unit rises B) Carrying costs per unit stays the same C) Carrying costs per unit decline

C

Which of the following is correct regarding inventory monitoring under the fixed-order-interval-model? A) Must monitor inventory constantly to avoid a stockout B) Inventory monitoring is handled by the vendor C) Only periodic checks of inventory required

C

Which statement is true for the economic production quantity (EPQ) model? A) Like EOQ, all orders are received in a single delivery. B) It is used only in jobs shops. C) It is used when production occurs in batches.

C

Which type of inventory is held to reduce the probability of a stockout? A) Speculative stock B) Cycle stock C) Safety stock

C

_______ 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. A) Periodic B) Personal C) Perpetual

C

Select all that apply Which of the following statements about discrete stocking levels in the single-period model is/are true? A) The stocking level should be compared to the relative frequencies. B) After finding the service level, use the z-table to find the correct stocking level. C) If the SL is equal to one of the probabilities, both that level and the next higher one have the same minimum cost. D) After finding the optimal service level, pick the next highest stocking level.

C and D

Select all that apply Which of the following statements about quantity discount models is/are true? A) When H is variable, the cost curves have the same minimum point. B) If H is fixed, the cost curves have different minimum points. C) Total cost must include product cost to evaluate options. D) The optimal quantity may not be the same as the EOQ.

C and D

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

Cycle

The overall objective of inventory is to achieve satisfactory levels of __________ while keeping inventory ________ reasonable. A) Customer service; Stockout B) Costs; Discounts C) Discounts; Costs D) Customer service; Cost

D

Which is the correct formula for the economic order quantity? A) (D/Q)S B) (D/Q)H C) (Q/2)H D) √2DSH2DSH E) (Q/2)H + (D/Q)S F) D/Q G) Q/D

D

Which is the correct formula for the total cost in the EPQ model? A) (D/Q)S B) √2DSH2DSH√pp−upp-u C) (Q/2)H + (D/Q)S D) (Imax/2)H + (D/Q)S E) (Imax/2)H

D

Which is the definition of holding cost in the EOQ model? A) The cost to carry all inventory for a length of time. B) The cost for receiving inventory. C) The cost when demand exceeds the supply of inventory. D) The cost to carry a single unit in inventory for a length of time.

D

Which is the correct formula for the maximum inventory in the EPQ model? A) √2DSH2DSH√pp−upp-u B) (Imax/2)H C) (Q/2)H + (D/Q)S D) (Imax/2)H + (D/Q)S E) (Qp/p)(p-u) F) Imax/2

E

Which is the correct formula for the total annual cost in the EOQ model? A) Q/D B) D/Q C) (D/Q)H D) (D/Q)S E) (Q/2)H + (D/Q)S F) (Q/2)H + √2DSH2DSH G) √2DSH

E

Which is the correct formula for the average inventory in the EPQ model? A) (Imax/2)H B) √2DSH2DSH√pp−upp-u C) (Q/2)H + (D/Q)S D) (Qp/p)(p-u) E) (Imax/2)H + (D/Q)S F) Imax/2

F

True or false: Many of the items that a firm stocks in inventory are generic regardless of the kind of business it engages in.

False

Manufacturing firms have used _________ as buffers between successive operations to maintain continuity of production that would otherwise be disrupted by events such as breakdowns of equipment and accidents that cause a portion of the operation to shut down temporarily.

Inventory

__________ ___________ is the ratio of average cost of goods sold to average inventory investment.

Inventory turnover

Service level is the ________ that demand will not exceed supply. Service level = 100% - _________ ___________

Probability; stockout; risk

The ___________ _____________ is the percentage of demand filled by the inventory on hand.

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

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