MKTG 372 Chapter 12

If annual demand is 48,000 units, orders are placed in quantities of 2000 units at a time, and the cost to place an order is $80, what is the annual ordering cost? a) $1,920 b) $3,840,000 c) $160,000 d) $80 e) $4,160

a) $1,920

In the service industry it is considered good performance when a company has an inventory loss of only: a) 1% b) 2% c) 3% d) 4% e) 5%

a) 1%

Mary's Flower Boutique needs to ship finished goods from its manufacturing facility to its distribution warehouse. Annual demand for the Flower Boutique is 2000 flowers. Flower Boutique can ship the flowers via regular parcel service (3 days transit time), premium parcel service (1 day transit time), or via public carrier (5 days transit time). What is the average annual transportation inventory for each alternative? a) 19.7, 6.6, 32.9 b) 20, 7, 50 c) 1, 15, 30 d) 25, 46, 99 e) 20, 6.6, 47.0

a) 19.7, 6.6, 32.9

Consider a periodic review system. The target inventory level is 1000 units. It is time to review the item, and the on-hand inventory level is 200 units. How many units should be ordered? a) 800 b) 1000 c) 1200 d) the EOQ amount e) the safety stock amount

a) 800

Which of the following is an assumption of the basic EOQ model? a) Lead time is known and constant. b) Demand may be seasonal. c) Orders can arrive in partial shipments. d) Quantity discounts are considered. e) Lost sales are allowed, but not back orders.

a) Lead time is known and constant.

If the costs (S and H) and demands (D) are the same, which of the following is not true with regard to the EPQ model as compared to the EOQ model? a) The EPQ model produces a higher total annual cost. b) The maximum inventory level is lower under the EPQ model than under the EOQ model. c) Both models use the same formula to compute annual ordering cost. d) The inventory depletion rate is the same for both models. e) The two models use different formulas to compute annual holding cost.

a) The EPQ model produces a higher total annual cost.

If the costs (S and H) and demands (D) are the same, which of the following is true with regard to the EPQ model as compared to the EOQ model? a) The lot size under the EPQ model is bigger than under the EOQ model. b) The maximum inventory level is higher under the EPQ model than under the EOQ model. c) The two models use different formulas to compute annual ordering cost. d) The inventory depletion rate is not the same for both models. e) Both models use the same formula to compute annual holding cost.

a) The lot size under the EPQ model is bigger than under the EOQ model.

What is the formula for inventory turnover? a) annual cost of goods sold / average inventory in dollars b) annual sales / average inventory in dollars c) average inventory in dollars / annual cost of goods sold d) average inventory in dollars / annual sales e) annual cost of goods sold / annual holding cost

a) annual cost of goods sold / average inventory in dollars

The ranking in ABC inventory analysis is based on what? a) annual dollar usage b) annual demand in units c) alphabetical order d) unit price e) item number

a) annual dollar usage

What costs are considered in the basic EOQ model? a) annual ordering costs + annual holding costs b) annual purchasing costs + annual holding costs c) annual ordering costs + annual holding costs + annual shortage costs d) annual purchasing costs + annual ordering costs + annual holding costs + annual shortage costs e) ordering costs per order + annual holding costs

a) annual ordering costs + annual holding costs

Which inventory function specifically is designed to allow the company to maintain a level production strategy? a) anticipation inventory b) fluctuation inventory c) lot-size inventory d) transportation inventory e) speculative inventory

a) anticipation inventory

Which is the primary inventory function that is activated after coupons are distributed to customers? a) anticipation inventory b) fluctuation inventory c) lot-size inventory d) MRO inventory e) speculative inventory

a) anticipation inventory

What are purchased items or extracted materials that will be transformed into components or products called? a) raw materials inventory b) finished goods inventory c) work-in-process inventory d) distribution inventory e) MRO inventory

a) raw materials inventory

What are the two major decisions to be made when using the periodic review system? a) the time between orders and the target inventory level b) the time between orders and the on-hand inventory c) the target inventory level and the on-hand inventory d) the time between orders and the order quantity e) the target inventory level and the order quantity

a) the time between orders and the target inventory level

The inventory objective of customer service is measured by any of the following except _______________. a) weeks of supply b) percentage of dollar volume shipped on schedule c) idle time due to component and material shortages d) percentage of orders shipped on schedule e) percentage of line items shipped on schedule

a) weeks of supply

What does WIP stand for? a) work-in-process b) waiting inventory position c) warning of inventory position d) weight of inventory position e) waiting inventory potential

a) work-in-process

For the basic EOQ model, what is the formula for the total annual cost? a) sqrt ..... b) (D/Q)S + (Q/2)H c) (Q/D)S + (Q/2)H d) DQ/S + 2Q/H e) sqrt.....

b) (D/Q)S + (Q/2)H

If a company carries 13 weeks of supply, what is the inventory turnover? a) 0.077 b) 4 c) 7.77 d) 676 e) 0.25

b) 4

A computer company has annual demand of 20,000. They want to determine EOQ for circuit boards which have an annual holding cost (H) of $10/unit, and an ordering cost (S) of $75. The purchasing lead time is 5 days. What is the TC and reorder point ( R) ? a) 300 units, $3,000 b) 400 units, $5,477 c) 200 units, $2,000 d) 350 units, $5, 277 e) 400 units, $5,350

b) 400 units, $5,477

Which of the following is an assumption of the basic EOQ model? a) Lead time is unknown. b) Demand is known and constant. c) Orders can arrive in partial shipments. d) Quantity discounts are considered. e) Lost sales are allowed, but not back orders.

b) Demand is known and constant.

In a periodic review system, if you are basing your time between orders on the EOQ, what should be its length in weeks? a) EOQ / 52 b) EOQ / average weekly demand c) average weekly demand / EOQ d) 52 / EOQ e) (EOQ)(average weekly demand)

b) EOQ / average weekly demand

What is the formula for calculating the maximum inventory level? a) Imax = H(1-d/p) b) Imax = Q(1-d/p) c) Imin = Q(1-s/p) d) Imax = Q(1-d/s) e) Imin = Q(1-d/h)

b) Imax = Q(1-d/p)

Consider the basic EOQ model. If annual demand doubles, what happens to the total annual setup and holding cost? a) It doubles. b) It increases by 41.42%. c) It remains the same. d) The impact depends upon the value of the setup cost. e) It quadruples (increases by 400%).

b) It increases by 41.42%.

Which of the following is not one of the six ways to use inventory? a) seasonal inventory b) JIT inventory c) pipeline inventory d) hedge inventory e) MRO inventory

b) JIT inventory

In a periodic review inventory system, how many units are ordered? a) Target inventory level b) Target inventory level − on hand balance c) Max inventory level − min inventory level d) The EOQ e) Average demand during review period + average demand during lead time

b) Target inventory level − on hand balance

Which of the following statements is not true? a) A two-bin system allows a firm to not have to keep perpetual inventory records. b) Using perpetual inventory records results in different order quantities than using a two-bin system. c) In a two-bin system, units in the second bin are not used until the first bin is empty. d) In a two-bin system, the size of the second bin should equal the demand during replenishment lead time. e) Perpetual inventory records are appropriate when using the EPQ model.

b) Using perpetual inventory records results in different order quantities than using a two-bin system.

Percentage of orders shipped on schedule is a good measure of finished goods customer service if: a) all orders and customers have similar cost impacts. b) all orders and customers have similar value. c) all orders and customers have similar backorder requirements. d) later deliveries are not considered. e) late deliveries contribute to the overall demand.

b) all orders and customers have similar value.

What costs are considered in the quantity discount model? a) annual ordering costs + annual holding costs b) annual purchasing costs + annual holding costs + annual ordering costs c) annual ordering costs + annual holding costs + annual shortage costs d. annual purchasing costs + annual ordering costs + annual shortage costs e. ordering costs per order + annual holding costs

b) annual purchasing costs + annual holding costs + annual ordering costs

If inventory records fail to accurately reflect the quantity of materials available, all except which of the following may occur? a) poor customer service b) continuous operations c) lower productivity d) poor material planning e) excessive expediting

b) continuous operations

Companies can achieve cost-efficient operations by using which of the following inventory approaches? a) work-in-process to buffer operations b) inventory building to leverage reduced setup costs c) JIT inventory to reduce overall cost d) level work force maintenance through e) speculative selling

b) inventory building to leverage reduced setup costs

Suppose that a plant manager uses economic batch sizes for production of a product. Suppose further that the setup cost is $50 per batch, the holding cost per unit per year is $10, the annual demand is 30,000 units, the firm operates (and experiences demand) 300 days per year, and the production rate per day is 1000 units. What will be the maximum inventory level that this product ever reaches? a) 577 b) 30 c) 519 d) 27,000 e) 58

c) 519

If the EOQ is ordered, which of the following is true? a) Annual ordering cost exceeds annual holding cost. b) Annual holding cost exceeds annual ordering cost. c) Annual ordering cost is equal to annual holding cost. d) The sum of annual ordering cost plus annual holding cost is maximized. e) The annual holding cost curve is decreasing.

c) Annual ordering cost is equal to annual holding cost.

How can the EPQ model be economically reconciled with just-in-time (JIT) production? a) Reduce annual demand (D). b) Increase annual holding cost per unit (H). c) Decrease ordering cost (S). d) Increase annual holding cost per unit (H) and Decrease ordering cost (S). e) The two cannot be reconciled.

c) Decrease ordering cost (S).

Which of the following is an assumption of the basic EOQ model? a) Lead time is unknown. b) Demand may be seasonal. c) Orders arrive at once (in one lot). d) Quantity discounts are considered. e) Lost sales are allowed, but not back orders.

c) Orders arrive at once (in one lot).

Which of the following statements is true? a) Periodic counting and cycle counting generally both count every item in stock. b) Periodic counting and cycle counting generally both do not count every item in stock. c) Periodic counting generally counts every item in stock, whereas annually cycle counting generally does not daily. d) Cycle counting generally counts every item in stock, whereas periodic counting generally does not. e) Periodic counting generally occurs more frequently than cycle counting.

c) Periodic counting generally counts every item in stock, whereas annually cycle counting generally does not daily.

When is the basic EOQ model a special case of the EPQ model? a) The demand per day approaches the demand per year. b) The production rate per day approaches 0. c) The production rate per day approaches infinity. d) The back order cost approaches infinity. e) d/p = 1.

c) The production rate per day approaches infinity.

If the costs (S and H) and demands (D) are the same, which of the following is not true with regard to the EPQ model as compared to the EOQ model? a) The EPQ model produces a lower total annual cost. b) The maximum inventory level is lower under the EPQ model than under the EOQ model. c) The two models use different formulas to compute annual ordering cost. d) The inventory depletion rate is the same for both models. e) The two models use different formulas to compute annual holding cost.

c) The two models use different formulas to compute annual ordering cost.

How can both the JIT and EOQ inventory theories effectively be reconciled? a) They can't. A firm must choose either one or the other. b) by using MRP c) by considering the setup cost as a variable instead of a parameter d) by applying Kanban cards to the EOQ system e) by assuming a finite production rate

c) by considering the setup cost as a variable instead of a parameter

In a two-bin system, what does the quantity in the second bin represent? a) the EOQ b) the EPQ c) demand during replenishment lead time d) the quantity in the first bin e) safety stock

c) demand during replenishment lead time

Which of the following is not affected by decisions about how much inventory to hold? a) item costs b) holding costs c) depreciation d) ordering costs e) stockout costs

c) depreciation

What does EPQ stand for? a) ensuring purchasing quality b) economic production quota c) economic production quantity d) economic purchasing quota e) economic purchasing quantity

c) economic production quantity

Which inventory function helps firms garner quantity discounts? a) anticipation inventory b) fluctuation inventory c) lot-size inventory d) transportation inventory e) speculative inventory

c) lot-size inventory

ABC inventory assumes that a company's inventory is ____ equal and _______________ the same level of _________. a) fully, does demand approximately, costs b) counted, requires control for, profit c) not, does not need, control d) not, does not need, ordering e) not, does not need, sales

c) not, does not need, control

Under a periodic review system, enough inventory must be carried to protect against stockout for the ___________. a) replenishment lead time b) review period c) replenishment lead time plus the review period d) bottleneck cycle time e) bottleneck cycle time plus the replenishment lead time

c) replenishment lead time plus the review period

Which of the following is used in determining the order quantity in the periodic review system? a) reorder point b) critical ratio c) target inventory level d) EOQ e) EPQ

c) target inventory level

The formula to calculate a week's of supply is? a) weeks of supply = average weekly usage in dollars/average inventory on hand in dollars b) weeks of supply = average weekly usage/12 * average inventory on hand in dollars c) weeks of supply = average inventory on hand in dollars/average weekly usage in dollars d) weeks of supply = average inventory on hand * average weekly usage in dollars e) weeks of supply - average inventory on hand * average annual usage in dollars * 12

c) weeks of supply = average inventory on hand in dollars/average weekly usage in dollars

In inventory management, when discussing customer service we mean: a) whether the customer is available when the product is. b) whether the product is available regardless if the customer desires it or not. c) whether the product is available when the customer wants it. d) whether the customer wants the available product. e) whether repair of the product is available.

c) whether the product is available when the customer wants it.

If annual demand is 24,000 units, orders are placed every 0.5 months, and the cost to place an order is $50, what is the annual ordering cost? a) $50 b) $1,200,000 c) $2,400,000 d) $1,200 e) $600,000

d) $1,200

Consider a periodic review inventory system with a lead time of two weeks and a review period of seven weeks. If the standard deviation of weekly demand is 200 and the desired cycle-service level is 86%, what should the safety stock equal? a) 305 b) 516 c) 600 d) 648 e) 1944

d) 648

Consider a periodic review system with a lead time of two weeks and a review period of seven weeks. If the average demand per week is 1000 units and 300 units of safety stock are held, what should the target inventory level be? a) 7300 b) 1300 c) 9000 d) 9300 e) 3300

d) 9300

Hand tools, lubricants, and cleaning supplies are usually examples of what? a) WIP inventory b) finished goods inventory c) raw materials inventory d) MRO inventory e) distribution inventory

d) MRO inventory

Which of the following inventory functions does not involve end products sold to customers? a) anticipation inventory b) fluctuation inventory c) lot-size inventory d) MRO inventory e) speculative inventory

d) MRO inventory

_____________________ is the probability that demand during lead time will not exceed on-hand inventory. a) EOQ service level b) Fill rate c) Stockout risk d) Order-cycle service level e) Lead time service level

d) Order-cycle service level

Which basic EOQ assumption does the EPQ model relax? a) Lead time is known and constant. b) Demand is known and constant. c) Quantity discounts are not considered. d) Orders arrive at once. e) Back orders are not allowed.

d) Orders arrive at once.

Which of the following is an assumption of the basic EOQ model? a) Lead time is unknown. b) Demand may be seasonal. c) Orders can arrive in partial shipments. d) Quantity discounts are not considered. e) Lost sales are allowed, but not back orders.

d) Quantity discounts are not considered.

The formula for calculating safety stock when an estimate of demand during lead time and its standard deviation are known is? a) SS = lead time * standard deviation b) SS = lead time * z c) SS = z* standard deviation d) SS = z*σdl e) SS = σdl* mean

d) SS = z*σdl

If the costs (S and H) and demands (D) are the same, which of the following is not true with regard to the EPQ model as compared to the EOQ model? a) The EPQ model produces a lower total annual cost. b) The maximum inventory level is lower under the EPQ model than under the EOQ model. c) Both models use the same formula to compute annual ordering cost. d) The inventory depletion rate is not the same for both models. e) The two models use different formulas to compute annual holding cost.

d) The inventory depletion rate is not the same for both models.

What are two logical ways in which to base the time between orders in a periodic review system? a) replenishment lead time or EOQ calculations b) replenishment lead time or bottleneck cycle time c) convenience or replenishment lead time d) convenience or EOQ calculations e) convenience or bottleneck cycle time

d) convenience or EOQ calculations

Finished goods in transit to the customer are called what? a) WIP inventory b) components inventory c) raw materials inventory d) distribution inventory e) MRO inventory

d) distribution inventory

All of the following affect holding costs except: a) storage costs b) obsolescence cost c) damage cost d) setup cost e) insurance cost

d) setup cost

A SKU is a ______________ at a _____________ geographic location. a) cost, uniquely identified b) profit, generally classified c) specific item, generally classified d) specific item, particular e) general item, particular

d) specific item, particular

Which inventory function exists between the manufacturing plant and the distribution plant? a) anticipation inventory b) fluctuation inventory c) lot-size inventory d) transportation inventory e) speculative inventory

d) transportation inventory

Which of the following is not an identified reason why manufacturing firms do not use optimal EOQ order quantities? a) do not have known uniform demand b) some suppliers have a minimum order quantity c) how the material is shipped d) what the sales price is e) insufficient storage space

d) what the sales price is

For product W, a firm has an annual holding cost percentage of 20%, an ordering cost of $110 per order, and annual demand of 15,000 units. The following price schedule applies to the firm's purchases. Units Ordered Price Per Unit 1-250 $30.00 251-500 $28.00 501-750 $26.00 ≥ 751 $25.00 What is the optimal order quantity? a) 251 b) 501 c) 696 d) 751 e) 812

e) 812

Which of the following allow you to calculate the average amount of inventory in transit? a) ATI - (365*d)/t b) ATI - (t/365)*d c) ATI = 365*t*d d) ATI = (tD)/365 e) ATI - (365*t)/d

e) ATI - (365*t)/d

What is the formula for calculating the average transportation inventory (ATI)? a) ATI = tD / 365/2 b) ATI = tU / 365 c) ATI = tD / 180x2 d) ATI = txD + 365 e) ATI = tD / 365

e) ATI = tD / 365

If the costs (S and H) and demands (D) are the same, which of the following is not true with regard to the EPQ model as compared to the EOQ model? a) The EPQ model produces a lower total annual cost. b) The maximum inventory level is lower under the EPQ model than under the EOQ model. c) Both models use the same formula to compute annual ordering cost. d) The inventory depletion rate is the same for both models. e) Both models use the same formula to compute annual holding cost.

e) Both models use the same formula to compute annual holding cost.

What implies that about 20% of the inventory items will account for about 80% of the inventory value? a) Little's law b) Friedman's law c) Pablo's proposition d) Keyne's law e) Pareto's law

e) Pareto's law

A (an) _________________ inventory record provides an up-to-date inventory balance by recording all inventory transactions as they happen. a) infinite b) everlasting c) constant d) permanent e) perpetual

e) perpetual

Which inventory function provides a cushion against unexpected supply shortage? a) anticipation inventory b) fluctuation inventory c) lot-size inventory d) transportation inventory e) speculative inventory

e) speculative inventory

Which inventory function provides a hedge against inflation? a) anticipation inventory b) fluctuation inventory c) lot-size inventory d) MRO inventory e) speculative inventory

e) speculative inventory

What does TBO stand for? a) time-based optimization b) target-based ordering c) target-based optimization d) time-based ordering e) time between orders

e) time between orders

Consider the following all-units quantity discount schedule and calculated EOQs. Units Ordered Price Per Unit EOQ at that Price 0-999 $36.00 1200 1,000-1,999 $32.00 1450 2,000-4,999 $30.00 2500 5,000-8,000 $26.00 2780 ≥ 8,000 $20.00 6000 Which of the following sets of order quantities is guaranteed to contain the optimal solution? a) {1450, 2500} b) {1450, 999} c) {0, 1000, 2000, 5000, 8000} d) {1200, 1450, 2500, 2780, 6000} e) {2500, 5000, 8000}

e) {2500, 5000, 8000}