Operations Management-CHP13

63. In a two-bin inventory system, the amount contained in the second bin is equal to the: A. ROP B. EOQ C. amount in the first bin D. optimum stocking level E. safety stock

A

67. In an A-B-C system, the typical percentage of the number of items in inventory for A items is about: A. 10 B. 30 C. 50 D. 70 E. 90

A

75. A risk avoider would want ______ safety stock. A. Less B. More C. The same D. Zero E. 50%

B

60. Which of the following is not one of the assumptions of the basic EOQ model? A. Annual demand requirements are known and constant. B. Lead time does not vary. C. Each order is received in a single delivery. D. Quantity discounts are available. E. All of the above are necessary assumptions.

D

66. Which of the following is least likely to be included in order costs? A. processing vendor invoices for payment B. moving delivered goods to temporary storage C. inspecting incoming goods for quantity D. taking an inventory to determine how much is needed E. temporary storage of delivered goods

E

The introduction of quantity discounts will cause the optimum order quantity to be: A. smaller B. unchanged C. greater D. smaller or unchanged E. unchanged or greater

E

A quantity discount will lower the reorder point.

FALSE

12. Interest, insurance, and opportunity costs are all associated with holding costs.

TRUE

The fixed-order interval model requires a larger amount of safety stock than the ROP model for the same risk of a stockout.

TRUE

The inventory value of the supply chain exceeds the inventory value of the organization's work in process inventory.

TRUE

The single-period model can be very helpful in determining how much to order.

TRUE

The total cost curve is relatively flat near the EOQ.

TRUE

The two basic issues in inventory are how much to order and when to order.

TRUE

Using the EOQ model, the higher an item's carrying costs, the more frequently it will be ordered.

TRUE

71. The EOQ model is most relevant for which one of the following? A. ordering items with dependent demand B. determination of safety stock C. ordering perishable items D. determining fixed interval order quantities E. determining fixed order quantities

E

74. A cycle count program will usually require that 'A' items be counted: A. daily. B. once a week. C. monthly. D. quarterly. E. more frequently than annually.

E

10. An example of inventory holding cost is the cost of moving goods to temporary storage after receipt from a supplier.

FALSE

11. Decoupling operations applies to the railroad industry.

FALSE

13. The A-B-C approach involves classifying inventory items by unit cost, with expensive items classified as 'A' items and low cost items classified as 'C' items.

FALSE

In the fixed-order interval model, the order size is the same for each order.

FALSE

In the quantity discount model, if holding costs are given as a percentage of unit price, a graph of the total cost curves will have the same EOQ for each curve.

FALSE

It is critical that the exact quantity calculated in the EOQ model be ordered.

FALSE

Quantity discounts are generally given for large number of orders.

FALSE

Safety stock eliminates all stock outs.

FALSE

The cost of placing an order is a function of order size.

FALSE

The cycle time represents the time between reorder point and receipt of order.

FALSE

The fixed-order interval model requires a continuous monitoring of inventory levels.

FALSE

The larger the number of orders placed, the larger the average level of inventory.

FALSE

1. One important use of inventories in manufacturing is to decouple operations through the use of work in process inventories.

TRUE

18. The average inventory level and the number of orders per year are inversely related: As one increases, the other decreases.

TRUE

19. The EOQ should be regarded as an approximate quantity rather than an exact quantity. Thus, rounding the calculated value is acceptable.

TRUE

28. When to order can be calculated by the ROP and expressed as a quantity.

TRUE

29. The rate of demand is an important factor in determining the ROP.

TRUE

6. To provide satisfactory levels of customer service while keeping inventory costs within reasonable bounds, two fundamental decisions must be made about inventory: the timing and size of orders.

TRUE

8. DVD recorders would be an example of independent demand items.

TRUE

Annual ordering cost is inversely related to order size.

TRUE

Carrying cost is a function of order size; the larger the order, the higher the inventory carrying cost.

TRUE

Cycle counting can be used in motorcycle inventory control.

TRUE

In the single-period model, the service level is the probability that demand will not exceed the stocking level in any period.

TRUE

Monitoring inventory turns over time can be used as a measure of performance.

TRUE

Profit margins tend to be inversely related to inventory turns.

TRUE

69. In the A-B-C classification system, items which account for sixty percent of the total dollar-volume for few inventory items would be classified as: A. A items B. B items C. C items D. A items plus B items E. B items plus C items

A

Which of the following interactions with vendors would potentially lead to inventory reductions? A. reduce lead times B. increase safety stock C. less frequent purchases D. larger batch quantities E. longer order intervals

A

Which one of these would not be a factor in determining the reorder point? A. the EOQ B. the lead time C. the variability of demand D. the demand or usage rate E. all are factors

A

A fill rate is the percentage of _____ filled by stock on hand. A. Shipments B. Demand C. Inventory D. Safety stock E. Lead time

B

An operations strategy for inventory management should work towards: A. increasing lot sizes B. decreasing lot sizes C. increasing safety stocks D. decreasing service levels E. increasing order quantities

B

In the quantity discount model, with carrying cost stated as a percentage of unit purchase price, in order for the EOQ of the lowest curve to be optimum, it must: A. have the lowest total cost B. be in a feasible range C. be to the left of the price break quantity for that price D. have the largest quantity compared to other EOQ's E. none of the above

B

Which item would be least likely to be ordered under a fixed order interval system? A. textbooks at a college bookstore B. auto parts at an assembly plant C. cards at a gift shop D. canned peas at a supermarket E. none of these

B

64. When carrying costs are stated as a percentage of unit price, the minimum points on the total cost curves: A. Line up B. Equal zero C. Do not line up D. Cannot be calculated E. Depend on the percentage assigned

C

65. Dairy items, fresh fruit and newspapers are items that: A. do not require safety stocks B. cannot be ordered in large quantities C. are subject to deterioration and spoilage D. require that prices be lowered every two days E. have minimal holding costs

C

70. The purpose of "cycle counting" is to: A. count all the items in inventory B. count bicycles and motorcycles in inventory C. reduce discrepancies between inventory records and actual D. reduce theft E. count 10% of the items each month

C

72. Which is not a true assumption in the EOQ model? A. Production rate is constant B. Lead time doesn't vary C. No more than 3 items are involved D. Usage rate is constant E. No quantity discounts

C

An operations strategy which recognizes high carrying costs and reduces ordering costs will result in: A. unchanged order quantities B. slightly decreased order quantities C. greatly decreased order quantities D. slightly increased order quantities E. greatly increased order quantities

C

In the A-B-C classification system, items which account for fifteen percent of the total dollar-volume for a majority of the inventory items would be classified as: A. A items B. B items C. C items D. A items plus B items E. B items plus C items

C

The management of supply chain inventories focuses on: A. internal inventories B. external inventories C. both internal and external inventories D. safety stock elimination E. optimizing reorder points

C

With an A-B-C system, an item that had a high demand but a low annual dollar volume would probably be classified as: A. A B. B C. C D. none of these

C

62. A non-linear cost related to order size is the cost of: A. interest B. insurance C. taxes D. receiving E. space

D

73. In a supermarket, a vendor's restocking the shelves every Monday morning is an example of: A. safety stock replenishment B. economic order quantities C. reorder points D. fixed order interval E. blanket ordering

D

77. In the basic EOQ model, if lead time increases from five to 10 days, the EOQ will: A. double B. increase, but not double C. decrease by a factor of two D. remain the same E. none of the above

D

Cycle stock inventory is intended to deal with ________. A. excess costs B. shortage costs C. stockouts D. expected demand E. quantity discounts

D

The fixed order interval model would be most likely to be used for this situation: A. A company has switched from mass production to lean production. B. Production is done in batches. C. Spare parts are ordered when a new machine is purchased. D. Grouping orders can save shipping costs. E. none of these

D

Which of the following is not true for Economic Production Quantity model? A. Usage rate is constant. B. Production rate exceeds usage rate. C. Run size exceeds maximum inventory. D. There are no ordering or setup costs. E. Average inventory is one-half maximum inventory.

D

76. In the basic EOQ model, if annual demand doubles, the effect on the EOQ is: A. It doubles. B. It is four times its previous amount. C. It is half its previous amount. D. It is about 70 percent of its previous amount. E. It increases by about 40 percent.

E

The need for safety stocks can be reduced by an operations strategy which: A. increases lead time B. increases lead time variability C. increases lot sizes D. decreases ordering costs E. decreases lead time variability

E

Which one of the following is not generally a determinant of the reorder point? A. rate of demand B. length of lead time C. lead time variability D. stockout risk E. purchase cost

E

14. An inventory buffer adds value and lowers cost in all supply chains.

FALSE

17. The average inventory level is inversely related to order size.

FALSE

2. The objective of inventory management is to minimize the cost of holding inventory.

FALSE

26. In the quantity discount model, the optimum quantity will always be found on the lowest total cost curve.

FALSE

27. ROP models indicate to managers the time between orders.

FALSE

3. A retail store that carries twice the inventory as its competitor will provide twice the customer service level.

FALSE

7. In the EOQ formula, holding costs under 10% are expressed as percentages, above 10% are expressed as annual unit costs.

FALSE

9. Reorder point models are primarily used for dependent demand items.

FALSE

A single-period model would be used mainly by organizations going out of business.

FALSE

All stock outs must be avoided.

FALSE

Because price isn't a factor in the EOQ formula, quantity discounts won't affect EOQ calculations.

FALSE

Discrete stocking levels are used when an organization doesn't want visibility of inventory levels.

FALSE

EOQ inventory models are basically concerned with the timing of orders.

FALSE

In the A-B-C approach, C items typically represent about 15 percent of the number of items, but 60 percent of the dollar usage.

FALSE

In the basic EOQ model, annual holding cost is one-half of the total annual cost for all items purchased.

FALSE

ROP models assume that demand during lead time is composed of a series of dependent daily demands.

FALSE

Safety stock is held because we anticipate future demand.

FALSE

The single-period model can be very helpful in determining when to order.

FALSE

Understocking an inventory item is a sure sign of inadequate inventory control.

FALSE

4. The overall objective of inventory management is to achieve satisfactory levels of customer service while keeping inventory costs reasonable.

TRUE

5. The two main concerns of inventory control relate to the costs and the level of customer service.

TRUE

Solving quality problems can lead to lower inventory levels.

TRUE

The basic EOQ model ignores the purchasing cost.

TRUE

The calculation of safety stock requires knowledge of demand and lead time variability.

TRUE

Variability in demand and/or lead time can be compensated for by safety stock.

TRUE

When the item is offered for resale, shortage costs in the single-period model can include a charge for loss of customer goodwill.

TRUE