Operations Management chapter 12

Which of the following is an element of inventory holding costs?

All of these are elements of inventory holding costs.

Which of the following is a function of inventory?

All of these are functions of inventory.

Which of the following statements regarding the reorder point is TRUE?

All of these are true.

Which of the following statements about the basic EOQ model is TRUE?

All of these statements are true.

Which of the following statements regarding control of service inventories is TRUE?

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

ABC analysis classifies inventoried items into three groups, usually based on annual units or quantities used.

False

ABC analysis is based on the presumption that carefully controlling all items is necessary to produce important inventory savings.

False

According to the global company profile, Amazon.com's advantage in inventory management comes from its almost fanatical use of economic order quantity and safety stock calculations.

False

At the economic order quantity, holding costs are equal to product costs.

False

Cycle counting is an inventory control technique exclusively used for cyclical items.

False

In the quantity discount model, the cost of acquiring goods (product cost) is not a factor in determining lot size.

False

In the simple EOQ model, if annual demand were to increase, the EOQ would increase proportionately.

False

In the simple EOQ model, if the carrying cost were to double, the EOQ would also double.

False

Insurance and taxes on inventory are part of the costs known as setup or ordering costs.

False

Safety stock in inventory systems depends only on the average demand during the lead time.

False

The EOQ model is best suited for items whose demand is dependent on other products.

False

Which item to order and with which supplier the order should be placed are the two fundamental issues in inventory management.

False

Work-in-process inventory is devoted to maintenance, repair, and operating materials.

False

An inventory decision rule states, "When the inventory level goes down to 14 gearboxes, 100 gearboxes will be ordered." Which of the following statements is TRUE?

Fourteen is the reorder point, and 100 is the order quantity.

Which of the following statements about the basic EOQ model is FALSE?

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

Which of the following statements regarding the production order quantity model is TRUE?

It relaxes the assumption that all the order quantity is received at one time.

Which of the following is NOT an assumption of the economic order quantity model shown below?

Production and use can occur simultaneously.

Which of the following statements regarding Amazon.com is FALSE?

The company was founded as, and still is, a "virtual" retailer with no inventory.

Which of the following statements about quantity discounts is FALSE?

The larger the annual demand, the less attractive a discount schedule will be.

If setup costs are reduced by substantial reductions in setup time, the production order quantity is also reduced.

True

In ABC analysis, "A" items are the most tightly controlled.

True

In cycle counting, the frequency of item counting and stock verification usually varies from item to item depending upon the item's classification.

True

In the production order quantity model, inventory does not arrive in a single moment but flows in at a steady rate, resulting in a larger production/order quantity than in an otherwise identical EOQ problem.

True

In the quantity discount model, it is possible to have a cost-minimizing solution where annual ordering costs do not equal annual carrying costs.

True

One advantage of cycle counting is that it maintains accurate inventory records.

True

One function of inventory is to take advantage of quantity discounts.

True

Retail inventory that is unaccounted for between receipt and time of sale is known as shrinkage.

True

Service level is the complement of the probability of a stockout.

True

The demand for automobiles would be considered as independent demand.

True

The fixed-period inventory model can have a stockout during the review period as well as during the lead time, which is why fixed-period systems require more safety stock than fixed-quantity systems.

True

The reorder point is the inventory level at which action is taken to replenish the stocked item.

True

The fixed-period inventory system requires more safety stock than a fixed-quantity system because:

a stockout can occur during the review period as well as during the lead time.

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

adding safety stock.

Among the advantages of cycle counting is that it:

allows more rapid identification of errors and consequent remedial action than is possible with annual physical inventory.

ABC analysis divides on-hand inventory into three classes, generally based upon which of the following?

annual dollar volume

The purpose of safety stock is to:

control the likelihood of a stockout due to variable demand and/or lead time.

Cycle counting:

eliminates annual inventory adjustments.

Q is to ________ systems as P is to ________ systems.

fixed quantity, fixed period

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

increase by about 41%.

The main trait of a single-period model is that:

inventory has limited value after a certain period of time.

If the actual order quantity is the economic order quantity in a problem that meets the assumptions of the economic order quantity model shown below, the average amount of inventory on hand:

is one-half of the economic order quantity.

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

minimizes the sum of holding, ordering, and product costs.

What is the difference between P and Q inventory systems?

order size and order spacing

Which of the following is a requirement of Q systems?

perpetual inventory system

:Which category of inventory holding costs has a much higher percentage than average for rapid-change industries such as PCs and cell phones?

pilferage, scrap, and obsolescence

Which category of inventory holding costs has a much higher percentage than average for rapid-change industries such as PCs and cell phones?

pilferage, scrap, and obsolescence

Which of the following should be higher in P systems than Q systems?

safety stock

Which of the following is NOT one of the four main types of inventory?

safety stock inventory

The proper quantity of safety stock is typically determined by:

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

A disadvantage of the fixed-period inventory system is that:

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

Service level is:

the probability of not stocking out and calculated as the cost of a shortage divided by (the cost of shortage + the cost of overage) for single-period models

ABC analysis is based upon the principle that:

there are usually a few critical items, and many items that are less critical.

An advantage of the fixed-period inventory system is that:

there is no physical count of inventory items when an item is withdrawn.

The two most basic inventory questions answered by the typical inventory model are:

timing of orders and order quantity.

Which of the following would NOT generally be a motive for a firm to hold inventories?

to minimize holding costs

What is the primary purpose of the basic economic order quantity model shown below?

to minimize the sum of setup cost and holding cost

Most inventory models attempt to minimize:

total inventory-based costs.

A major challenge in inventory management is to maintain a balance between inventory investment and customer service.

true

Which of the following statements about ABC analysis is FALSE?

ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.

All EXCEPT which of the following statements about ABC analysis are true?

ABC analysis suggests that all items require the same high degree of control.

Which of these statements about the production order quantity model is FALSE?

All else equal, the smaller the ratio of demand rate to production rate, the larger is the production order quantity.

If the standard deviation of demand is six per week, demand is 50 per week, and the desired service level is 95%, approximately what is the statistical safety stock?

Cannot be determined without lead time data.

Which of the following items is mostly likely managed using a single-period order model?

Christmas trees