OM Final - Chapter 12

A product whose EOQ is 40 experiences a decrease in ordering cost from $90 per order to $10. The revised EOQ is

1/3 as large

Inventory decision rules, "when the inventory level goes down to 14 gearboxes, 100 will be ordered"

14 is reorder point, 100 is quantity

Fixed period inventory model requires more safety stock than the fixed quantity models because

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

Method for dividing hand-on inventory into 3 classifications based on annual dollar inventory

ABC analysis

If demand is not uniform and constant, then stockout risks can be controlled by

Adding safety stock

EOQ is true?

All are true

POQ model is false?

All else equal, the smaller the ratio of demand rate to production rate, the larger is the POQ

Function of inventory

All of the above are

Which of the following are elements of inventory holding costs

All of the above are elements of inventory holding costs

Regarding the reorder point is true

All of the above are true

Among the advantages of cycle counting is that it

Allows more rapid ID of errors and consequent remedial action than is possible with annual physical inventory

ABC analysis if false

Based on the presumption that all items must be tightly controlled to produce important cost savings

Amazon.com is false?

Company was founded as and still is a virtual retailer with no inventory

Purpose of safety stock

Control likelihood of a stockout due to variability of demand during lead time

Continuing reconciliation of inventory with inventory records

Cycle Counting

When demand is constant and lead time is variable, safety stock computation requires three inputs: value of Z, _______, and standard deviation of lead time

Daily Demand

Inventory that separates various parts of the production process

Decoupling

In the production order quantity model, the fraction of inventory that is used immediately and not stored is represented by the ratio of

Demand rate to production rate

Safety stock problem includes parameters for average daily demand, std. devation of demand, and lead time, then _____ is variable and _________ is constant

Demand, Lead Time

Which of the following statements regarding control of service inventories

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

System triggers inventory ordering on a uniform time frequency

Fixed-Period

EOQ model with quantity discounts attempts to determine

How many units should be ordered

EOQ is false?

If annual demand were to double, the EOQ would also dobule

Given level of demand annual holding cost is larger as the order quantity

Larger

Statements of quantity discounts is false?

Larger annual demand, the less attractive a discount schedule will be

Time between placement and receipt of order

Lead Time

Not generally be a motive for a firm to hold inventories

Minimize holding costs

In an EOQ, the total annual cost curve is at its ______ where holding costs equal setup costs

Minimum

Not an assumption of the EOQ

Production and use can occur simultaneously

Material that is usually purchased but has yet to enter the manufacturing process

Raw material

In a quantity discount problem, if the savings in product cost is smaller than the increase in the sum of setup cost and holding cost, the discount should be

Rejected or refused

Following statements regarding the production order quantity model is true?

Relaxes the assumption that all the order quantity is received at one time

Model gives satisfactory answers even with substantial variations in its parameters

Robust

Extra stock that is carried to serve as a buffer

Safety stock

Not one of the four main types of inventory

Safety stock inventory

Complement of the probability of a stockout

Service level

Proper quantity of safety stock is typically determined by

Setting the level of safety stock so that a given stockout risk is not exceeded

Disadvantage of the fixed period inventory system

Since there is no count of inventory during the review period, a stockout is possible

An advantage of the fixed-period system is that

There is no physical count of inventory items when an item is withdrawn

Amazon's concept of operating without inventory now a leader in

Warehouse management and automation

ABC analysis divides hand on inventory into three classes based upon

annual dollar volume

In the basic EOQ model, if the cost of placing an order doubles and all other variables remain constant, EOQ will

increase by 41%

A product whose EOQ is 400 experiences a 50% increase in demand. The new EOQ is

increased by less than 50%

If the actual order quantity if the economic order quantity in a problem that meets the assumptions of the EOQ the average amount of inventory on hand

is 1/2 of the EOQ

All of the following statements about ABC analysis are true except

it states that all items require the same degree of control

Primary purpose of the basic EOQ model

minimize the sum of setup and holding cost

When quantity discounts are allowed, the cost-minimizing order quantity

minimizes the sum of holding, ordering and product costs

Category of inventory holding costs is higher than average for rapid-changing industries such as PCs and cell phones

pilferage, scrap and obsolescence

Cycle counting

provides a measure of inventory accuracy

ABC analysis is based upon the principle that

there are usually a few critical items and many items are less critical

Two most basic inventory questions answered by the typical inventory model are

timing and quantity of orders

Most inventory models attempt to minimize

total inventory based costs