M2AC3 Part 1
The minimum total cost on an economic order quantity (EOQ) curve is The EOQ is the point on the total cost curve that lies directly above the intersection of the carrying cost and ordering (setup) cost curves. The curves are determined mathematically, and they always produce the same result, with the minimum total cost lying directly above the intersection of the other two cost curves.
1)always directly above the intersection of the carrying and ordering cost curves. - correct 2)often exactly at the intersection of the ordering and transportation cost curves. 3)often at a different point than above the lowest cost for either curve or their intersections. 4)always at the same point as a full truck shipment.
An organization uses a periodic review system. At the review period, for one SKU the organization currently has 40 units of cycle stock and 50 units of safety stock. The order lead time is one week. Average weekly sales are 30 units. Its maximum-level inventory is 200 units. How much inventory should the organization order? The quantity ordered is the maximum-level inventory level less the quantity of inventory on hand at the review period, which is the cycle stock plus the safety stock: 200 units - (40 units + 50 units) = 110 units.
110 units - correct 130 units 140 units 160 units
A supply chain has seven suppliers each with their own warehouse, one manufacturing warehouse, and three distribution centers each serving six retail stores. How many echelons does this supply chain have? The APICS Dictionary, 15th edition, defines an echelon as "a level of supply chain nodes. For example, a supply chain with two independent factory warehouses and nine wholesale warehouses delivering product to 350 retail stores is a supply chain with three echelons between the factory and the end customer. One echelon consists of the two independent factory warehouses, one echelon consists of the nine wholesale warehouses, and one echelon consists of the 350 retail stores. Each echelon adds operating expense, holds inventory, adds to the cycle time, and expects to make a profit."
4 - correct 6 17 29
According to the ABC system of classifying inventory, the greatest share of revenue will be generated by approximately what percentage of total inventory items? The ABC system of classifying inventory asserts that the A items in inventory will constitute from 10 to 20 percent of the total number of items but will create 50 to 70 percent by projected dollar volume. This is an approximate application of the Pareto principle, or 80-20 rule, which holds that about 20 percent of possible causes account for about 80 percent of outcomes.
80 percent 55 percent 30 percent 15 percent - correct
Which of the following is an aggregate-level inventory process? Aggregate inventory management is accomplished through inventory policy setting and master scheduling and by classifying inventory, using a system such as ABC inventory classification. The other options are item inventory management systems.
ABC inventory classification - correct Economic order quantity Order point system Material requirements planning
Cycle counting is usually paired with which of the following to minimize the total cost of inventory shrinkage? Inventory shrinkage is "losses of inventory resulting from scrap, deterioration, pilferage, and so forth" (APICS Dictionary, 15th edition). ABC inventory classification groups inventory into categories of relative value, and when paired with cycle counting, can be used to count A items more frequently, thus reducing the likelihood of shrinkage for the most valuable inventory.
ABC inventory classification - correct Inventory adjustment Periodic counting Echelon inventory policy
Some organizations use safety lead time to address lead time variations in which of the following? Organizations may keep supplies on hand to fill orders while the next lot is in transit as in-transit inventory. When order lead times vary significantly or are lengthy, it increases the chances that a stockout could occur while waiting for an order to arrive. Some organizations solve these risks by placing orders early.
Anticipatory inventory Fluctuation inventory In-transit inventory - correct Work-in-process inventory
A hard drive manufacturer produces hard drives for use as dependent and independent demand sales. How should the organization categorize these hard drives once they pass final inspection? Once an organization's goods pass final inspection, they are accepted as finished goods inventory. Classification of inventory type depends on the point of reference, meaning that a raw material supplier's finished good becomes a raw material for another manufacturer only upon transfer.
Both dependent and independent demand hard drives are finished goods inventory. - correct Both dependent and independent demand hard drives are raw materials inventory. Dependent demand hard drives are work-in-process inventory; independent demand hard drives are raw materials. Dependent demand hard drives are raw materials inventory; independent demand hard drives are finished goods inventory.
Obsolescence or theft risks are included in which inventory cost category? Carrying costs include all the expenses involved in housing the inventory, including risk costs.
Carrying costs - correct Risk management costs Lost customer or sale costs Ordering costs
Which of the following statements most accurately identifies the effect of increasing order sizes on inventory carrying and ordering costs in the economic order quantity calculation? The larger the order, the higher the carrying costs, because there is more inventory to hold. Ordering costs tend to go down as orders grow larger because of economies of scale. Larger orders can be placed less frequently than smaller orders, thus reducing the number of orders or setups.
Carrying costs remain constant, while setup costs rise steadily. Total costs drop up to a point and then rise steadily. - correct Economies of scale lower all carrying and ordering (setup) costs equally and steadily. Ordering costs remain constant, while carrying costs drop steadily.
An organization needs to order a type of teddy bear nine months in advance of the holiday season and bases the quantity partly on the consumer confidence index. What sort of inventory is this? Anticipation inventory is "additional inventory above basic pipeline stock to cover projected trends of increasing sales, planned sales promotion programs, seasonal fluctuations, plant shutdowns, and vacations" (APICS Dictionary, 15th edition).
Cycle stock Anticipation inventory - correct Safety stock Hedge inventory
Which of the following techniques might be used to measure the opportunity cost component of the carrying costs of inventory? The weighted average cost of capital (WACC) is the relative proportion or weight of an organization's use of debt and equity. WACC can be used as a required percentage return on inventory sales that must be exceeded because the money could have been invested elsewhere (opportunity cost).
Factory overhead costs Weighted average cost of capital - correct Interest due on loans Labor costs
An organization has a small warehouse with numerous tiny parts. Which of the following could help this organization reduce its time spent in physical inventory verification counts? A warehouse can use bins and space arrangements that make counting easy. If storage bins are limited to a certain number of items, you can estimate at a glance and count by groups instead of individual items. The top bin may not have a full amount and only this bin need be counted. Tiny parts may not be conducive to labeling, which would be another way to improve tracking.
Group functionally related items together. Label items with clearly visible tags and bar codes. Use ABC inventory classification to reduce the number of parts to count. Create bins with a maximum number of parts in them. - correct
Which of the following identifies a risk of ordering more inventory than required to fill forecasted demand? The risk of having inventory items become obsolete increases when amounts ordered exceed the forecast significantly. Economies of scale in transport and purchase are potential benefits of larger orders, as is decoupling from the supplier.
Higher per-item costs for purchasing the inventory Higher per-car costs for transporting the inventory Increased obsolescence - correct Decoupling from supplier
Which of the following types of inventory costs could be overlooked when setting safety stock levels because they are difficult to quantify even though they are significant costs? The cost of backorders, lost sales, and lost customers are costs related to customer service. These costs can be difficult to quantify financially.
Holding costs Lost sale costs - correct Item costs Ordering costs
Which of the following should be done regarding inventory policy if a snack chip manufacturer adds a new type of snack chip to its line of offerings? I.Create an independent, stand-alone policy for the new line. II.Link the item's policy to the production line product family. III.Link the policy to the organization's other product families stocked on the same shelves. When determining inventory policy, the organization should link its inventory policy to the product family and also to inventory policies for items that are competing for retail shelf space.
I only I and II only II and III only - correct I, II, and III only
Which of the following is taken into consideration when calculating inventory accuracy? I.Tolerance level per SKU II.Target value of SKU III.On-hand quantity and recorded balance IV.Total number of SKUs Solution : The APICS Dictionary, 15th edition, defines inventory accuracy as follows: "When the on-hand quantity is within an allowed tolerance of the recorded balance. This important metric usually is measured as the percent of items with inventory levels that fall within tolerance. Target values usually are 95 percent to 99 percent, depending on the value of the item. For logistical operations (location management) purposes, it is sometimes measured as the number of storage locations with errors divided by the total number of storage locations."
III only I and III only I, III, and IV only I, II, III, and IV - correct
A company creates a bar chart showing the causes of customer returns on its new dinner plates. What key message does the following illustrate? This Pareto diagram shows that 80 percent of customer returns are due to plate finish problems and that the related processes should be improved. Money and improvement efforts should be focused on improving the finishing process where the biggest gains will be seen.
It shows that all of the customer returns can be attributed to just four specific problems. It shows that the vast majority of customer returns (80 percent) are due to one of four reasons—plate finish problems. - correct It shows the major causes and effects of customer returns. It shows that 40 percent of customer returns are due to weight, shape, and miscellaneous problems.
Your organization has been working diligently on improving the customer service scores of its logistical services in order to reach a 100% service level. Is that a good strategy? If the company improves its customer service level to 100 percent, it could incur many additional expenses. Therefore, it's not a good strategy, because it could be financially ruinous.
It's a good strategy, because it will give you an edge over competitors. It's a good strategy if it results in more speedy delivery of products to customers. It's not a good strategy, because it will require more reliance on 3PL and 4PL. It's not a good strategy, because the company could incur additional expenses that are counterproductive. - correct
When deciding whether to acquire a component from a domestic or foreign source, which of the following comparisons provides the most accurate assessment of their relative value? Landed cost includes the product cost plus the cost of logistics, such as warehousing, transportation, and handling fees.
Landed cost of each source - correct Relative price plus transportation Simple price comparison Relative price adjusted for currency exchange and import duties
Pilferage contributes to which of the following costs? Pilferage is considered to be one of the potential costs of carrying inventory.
Logistics costs Item costs Carrying costs - correct Ordering costs
Which type of inventory is a period expense and thus must be expensed on the income statement in the period it was purchased rather than being listed on the balance sheet? Maintenance/repair/operations (MRO) inventory is a period expense. As such, it is expensed on the income statement during the period in which it is purchased.
MRO - correct WIP Raw materials Finished goods (retail)
Which can be seen as a lubricant that keeps the supply chain flexible even though it is also a buffer that hides flaws in the supply chain that might otherwise be corrected? While inventory can be seen as the buffer that hides the flaws in the supply chain, it can also be seen as the lubricant that keeps a supply chain flexible. A flexible supply chain is able to respond quickly to internal or external (market) changes, such as fluctuations in demand.
Management overrides Cash flow Inventory - correct Bottlenecks
Which of the following decisions should be made using item inventory management rather than aggregate inventory management? Management specifies rules to follow for individual inventory items using inventory policy and/or information technology systems. These rules specify when to order inventory and how to determine order size per order. The other options are better done using aggregate inventory management.
Optimizing the size of buffers between supply chain stages Calculating inventory costs by category Optimizing the flow of inventory Calculating the size or timing of inventory orders- correct
Which of the following correctly describes the benefit of conducting periodic inventory counts? Periodic inventory counts provide a value for inventory at one point in time, but they disrupt business, are relatively expensive, are prone to inaccuracy, and don't promote accurate ordering policies (because they are infrequent and tend to be inaccurate).
Periodic counts don't disrupt the ordinary flow of business. Periodic counting is inexpensive. Periodic counting promotes accurate ordering. Periodic counting provides a financial value for all inventory at one point in time. - correct
Which of the following would tend to reduce the amount of safety stock needed at a particular location? You are most vulnerable to a stockout at the time of replenishment because of the uncertainty of order timing and receipt. If you need to replenish only once a year, you have one point of vulnerability, while replenishing weekly creates 52 potential stockout situations. Therefore, more frequent ordering typically requires higher levels of safety stock. However, infrequent ordering involves larger orders and average inventory levels, so there is also a cost associated with less frequent ordering.
Periods of low demand followed by high demand Increased mean absolute deviation Longer order lead time Less frequent ordering - correct
Which of the following statements best describes the relative care that should be taken in securing A, B, and C inventory items? While protecting all items is obviously important, the most cost-effective approach may be to spend relatively more resources on A items than on the less valuable, but larger, percentage of inventory.
Provide the best protection for A items.- correct Provide the best protection for B items. Provide the best protection for C items. Provide the same level of protection to all items.
A stockkeeping unit (SKU) in a distribution system can identify which of the following? According to the APICS Dictionary, 15th edition, a SKU in a distribution system is "an item at a particular geographic location. For example, one product stocked at the plant and at six different distribution centers would represent seven SKUs."
Quantity discount Purchase order Geographic location - correct Serial number
Which of the following actions is most likely to mitigate the consequences of the bullwhip effect? Reducing lead times improves forecasting because forecasts can be for shorter periods. Forecasting accuracy is higher for shorter periods versus longer periods. Automation or process justification and simplification to just those steps customers perceive as value-added can reduce manufacturing lead times or demand lead times (from order placement until the item reaches the customer), with an added benefit of reducing labor costs.
Reducing lead times by simplifying processes - correct Making special offers at the end of a quarter if sales targets are not yet met Using multiple demand forecasts along the chain Rationing
Which of the following is most likely to be the main reason why the total warehouse inventory count of a key raw material would understate the organization's actual investment in that raw material? In-transit inventory is frequently overlooked but is often a significant portion of overall inventory.
Shrinkage or theft Unaccounted entry into work-in-process inventory Failure to include maintenance/repair/operations (MRO) inventory Doesn't include in-transit inventory - correct
An organization has a reliable supplier who has never had order or lead time issues. Which of the following choices would be best when the price of the materials fluctuates strongly with the market and is currently low? One reason to hold more inventory is to hedge against price fluctuations. A temporary increase in cycle stock would help hedge against price increases. The APICS Dictionary, 15th edition, defines cycle stock as inventory that "depletes gradually as customer orders are received and is replenished cyclically when supplier orders are received." Since safety stock is an assigned level of stock held to hedge against supply variability, this purchase should not be classified as an increase in safety stock.
Temporarily increase cycle stock. - correct Temporarily increase safety stock. Permanently increase cycle stock. Permanently increase safety stock.
Which of the following is a true statement about the use of data for decision making? Analysis shows that aggregating the data for a forecast will lower the variability in the data and lead to a better forecast than if granular level data are used. Aggregation is "the concept that pooling random variables reduces the relative variance of the resulting aggregated variable. For example, the relative variance in sales of all models of automobiles sold by a firm is less than that for a single model" (APICS Dictionary, 15th edition).
To smooth out variability in forecasts, use aggregated data rather than item-level data. - correct The sum of individual item standard deviations will produce lower deviation than if the aggregate is used. Take all available data and create a model to deal with each element. Data should be analyzed at a granular level whenever possible.
The economic order quantity (EOQ) calculation will work adequately under which of the following conditions? Using the economic order quantity for fixed ordering systems effectively assumes a number of conditions, such as constant, known demand, constant lead times, and the simultaneous arrival of all items ordered. Order intervals may vary, but the quantity (EOQ) is fixed.
When lead times vary When orders arrive in stages When seasonal demand varies When order intervals vary - correct
When would lot-size inventory be synonymous with cycle stock? Transportation discounts are available for bulk purchases or for fully loaded vehicles. This type of inventory is called lot-size inventory, which is sometimes synonymous with cycle stock (i.e., when the order quantity is equal to a lot size). The APICS Dictionary, 15th edition, defines cycle stock as inventory that "depletes gradually as customer orders are received and is replenished cyclically when supplier orders are received."
When purchases are made using a periodic review system When purchases are made using a min-max system When inventory is in the transportation network or at intermediate stocking points When purchases are made in full truckload quantities only - correct
At what point are the direct materials, direct labor, and overhead associated with inventory put on the income statement as a product expense? Direct materials, direct labor, and overhead associated with inventory are booked as a product expense when the products are sold. Thus, these are called the cost of goods sold.
When the inventory is sold - correct When the inventory becomes finished goods inventory When the inventory becomes work-in-process inventory Never. They are period expenses.
Can a highly efficient cross-docking system achieve the goal of no inventory ever at rest? Unpredictable demand, along with other factors such as accidents and adverse weather conditions, mean that maintaining some levels of inventory at various locations along the supply chain is generally necessary.
Yes, a major retailer has done so successfully. No, because TL shipments have overstock. No, due to inherent variability in demand. - correct This is not a goal of cross-docking.
If an organization outsources all of its production activities but continues to perform warehousing and distribution, then the inventory management role should The inventory management role should plan and control inventory at each stage of development, from raw materials to customer handoff. Therefore, this role can benefit strongly from supply chain collaboration. Inventory management is also integrally connected to production management. Inventory feeds into production and/or is a result of production, so the two areas require coordination at each level of production planning refinement.
collaborate with external inventory management at each level of production planning. - correct not be necessary at this organization. be decentralized so the organization can retain control over inventory levels. consist of managing inventory at distribution centers and retail locations.
The key benefit of using an echelon inventory policy is that An echelon inventory policy considers inventory at a particular echelon to include all inventory at that echelon and at all later points in the supply chain, including all in-transit inventory after the given point. The benefit of thinking in this way is that the demand from all lower points can be aggregated for more accurate calculation of order quantities and order levels. An echelon inventory policy is not designed for decentralized planning except in the case of hybrid systems that use a centralized policy up to a point.
demand from all lower echelons (excluding in-transit inventory) can be aggregated. demand from all lower echelons (including in-transit inventory) can be aggregated. - correct it could optimize decentralized inventory planning by helping all echelons order together. it could optimize decentralized inventory planning by helping each echelon implement distributor integration.
By ordering extra safety stock, a purchasing manager might reasonably expect to benefit the supply chain in all the following ways except Adding safety stock can achieve the goals of improved customer service, reduced stockouts, and anticipation of demand spikes; it is more likely to increase overall costs than reduce them. (Cost savings from reducing safety stock must, however, be balanced against the potential costs of increased stockouts.)
reducing the likelihood of stockouts. reducing overall supply chain costs. - correct improving customer service. anticipating unpredicted demand spikes.
An organization is using an order point system, and its supplier reduces its delivery lead time. If the organization keeps the same order point, If either the average demand or the lead time changes, the order point should also be changed or the level of safety stock will automatically change.
the amount of order lead time will automatically increase. the level of safety stock will automatically increase. - correct the order intervals will automatically decrease. the order quantity will automatically decrease.
An organization performing inventory planning and network design would find considering echelons helpful in the decision process because Echelons can be helpful in planning the locations of inventory because organizations can decide how many echelons to have. Some organizations will not have as many as others, since each adds to material, labor, overhead, and inventory costs. However, each can provide particular benefits, and so increasing the number of echelons does not always increase total supply chain costs.
the overall number of retailer echelons impacts market awareness. fewer echelons always equate to lower total supply chain costs. the total number of echelons equals the total number of inventory locations. entire echelons could be omitted from the supply chain. - correct
Pipeline inventory is Pipeline inventory is the product inventory that is in transit between locations.
the products that are in transit between locations. - correct the products sitting at the cross-dock. the products that need to shipped out of the country. the products that are ready to leave the manufacturing facility.