Module 7 The Newsvendor Inventory Model Quiz

If a retailer purchases a certain item under the newsvendor model and the optimal in-stock probability is 84% - which is 0.99 standard deviations above the mean - what would be the optimal order quantity given that the average expected demand is 239 with a standard deviation of 20.65? (Round up) 247 251 260 254

260

Everything else held equal, a decrease in the cost of overstocking is likely to _________. decrease the cost of transportation. increase the cost of transportation increase the unit profit margin decrease the unit profit margin

increase the unit profit margin

Everything else held equal, a decrease in the cost of overstocking is likely to______ increase the cost of transportation increase the unit profit margin decrease the cost of transportation. decrease the unit profit margin

increase the unit profit margin

Generally in the newsvendor model the optional order quantity will____when the producer's price____ increase; decreases increases; increases decreases; decreases these items are unrelated

increase; decreases

In the newsvendor model, if the producer charges ______, the cost of overstocking goes _____ and the cost of understocking ______. more; down; goes up less; down; goes up less; down; is unaffected more; down; is unaffected

less; down; goes up

in the newsvendor model, ordering the optimal in-stock probability will_____ minimize total costs minimize overstocking costs minimizing understocking costs all of the above

minimize total costs

What is the special problem posed by the newsvendor model? Given uncertain, variable demand, the seller is likely to stock too many or too few with only a short time frame to sell the product at full cost. Given stable, predictable demand, the seller is likely to stock too many or too few with only a short time frame to sell the product at full cost. Given stable, predictable demand, the seller is likely to stock too many or too few with only a short time frame to sell the product at full cost. Given stable, predictable demand, the seller is likely to stock too many or too few with an extended time frame to sell the product at full cost.

Given uncertain, variable demand, the seller is likely to stock too many or too few with only a short time frame to sell the product at full cost.

Which of the following statements is TRUE? If the producer/manufacturer increases its prices to a retailer, the retailer's cost of understocking decreases. If the producer/manufacturer reduces its prices to a retailer, the retailer's in-stock probability decreases. If the producer/manufacturer reduces its prices to a retailer, the retailer's profit margins increase. If the producer/manufacturer reduces its prices to a retailer, the retailer's cost of overstocking increases.

If the producer/manufacturer reduces its prices to a retailer, the retailer's profit margins increase.

A retailers risk decreases _____ when its supplier lowers its price when it locates favorable salvage alternatives when its transportation costs decrease all of the above

all of the above

Everything else held equal for an optimal in-stock probability of 83%, an increase in the variation of average demand will mean _______ no change in the optimal order quantity. a decrease in the optimal order quantity. an increase in the optimal order quantity.

an increase in the optimal order quantity

Everything else held equal, an increase in transportation cost is likely to ______ increase the cost of overstocking increase the cost of understocking decrease the cost of understocking both (a) and (b) are correct both (a) and (c) are correct

both (a) and (c) are correct

Which of the following is not relevant in determining how much to order when using a newsvendor model? cost of understocking cost of ordering cost of overstocking

cost of ordering

When the transportation costs increase, the profit margin per unit ___________. increases is equal to the salvage value. decreases is not affected

decreases

If a retailer purchases a certain item under the newsvendor model and the optimal in-stock probability is 95%, which is 1.64 standard deviations above the mean, what would be the optimal order quantity given that the average expected demand is 429 wit a standard deviation of 71.9? 556 491 547 471

547

if a retailer purchases a certain item under the newsvendor model and the cost of overstocking and the cost of understocking are $180 and $290, respectively, what would be the optimal in-stock probability? 62% 79% 84% 28%

62%

If a retailer purchases a certain item under the newsvendor model and the cost of overstocking and the cost of understocking are $10 and $45, respectively, what would be the optimal in-stock probability? 47% 96% 56% 82%

82%

If a retailer purchases a certain item under the newsvendor model and the cost of overstocking and the cost of understocking are $10 and $45, respectively, what would be the optimal in-stock probability? 56% 47% 82% 96%

82%

In a newsvendor model, which of the following is TRUE?

An optimal order quantity exists such that cost of overproduction and the cost of underproduction are approximately equal to each other.

Which of the following statements is TRUE? As the optimal in-stock probability increase, the optimal order quantity increases If the optimal in-stock probability is less than 50%, then we order more than the average expected demand. As the optimal in-stock probability increases, the optimal order quantity decreases. If the optimal in-stock probability is greater than 50%, then we order less than the average expected demand.

As the optimal in-stock probability increases, the optimal order quantity increases

Which of the following statements is TRUE? If the optimal in-stock probability is greater than 50%, then we order less than the average expected demand. As the optimal in-stock probability increases, the optimal order quantity decreases. If the optimal in-stock probability is less than 50%, then we order more than the average expected demand. As the optimal in-stock probability increases, the optimal order quantity increases.

As the optimal in-stock probability increases, the optimal order quantity increases.

__________ tends to increase the in-stock probability. A. An increase in the cost of stocking out B. A decrease in the cost of overstocking C. Both (a) and (b) D. Neither (a) nor (b)

Both (a) and (b)

A merchant is planning how much of a high-margin product to purchase for a special event. Any product not sold can be used by the store later in a different product assortment. Which of the following is TRUE? A. Everything else held equal, the merchant would prefer to overstock rather than understock. B. Everything else held equal, the merchant would prefer to understock rather than overstock. C. The newsvendor model may not be the best inventory decision tool for this application. Both (a) and (c) are true. Both (b) and (c) are true.

Both (a) and (c) are true.

Which of the following is correct regarding the optimal order quantity (Q*)? Q*= number of standard deviations-(average expected demand*standard deviation of demand) Q* = Average expected demand + (Number of standard deviations * Standard deviation of demand) Q* = Average expected demand + (Number of standard deviations / Standard deviation of demand) Q* = Number of standard deviations + (Average expected demand * Standard deviation of demand)

Q*=Average expected demand+(number of standard deviations*standard deviation of demand)

In the newsvendor model, demand varies from day to day depending on many factors. What statistic captures this uncertainty? A. The standard deviation of demand. B. The optimal order quantity. C. Expected demand. D. None of these.

The standard deviation of demand.