OPSM CHAPTER 13 QUIZ

For a given annual demand, total annual ordering cost is independent of order size.

False

With the economic order quantity (EOQ) model, increasing the order quantity reduces inventory carrying cost.

False

Carrying costs are more difficult to determine than ordering or shortage costs.

False.

Class A items in the ABC classification system require less monitoring and control than Class C items.

False.

Continuous inventory systems are primarily intended for lower cost items because they are easier to use, and require fewer resources.

False.

Product deterioration, spoilage, breakage, and obsolescence are examples of shortage costs.

False.

The EOQ model determines the optimal order size that minimizes the sum of carrying costs and shortage costs.

False.

The average inventory can be calculated by dividing the annual demand, D, by 2.

False.

The number of orders can be calculated by dividing the daily demand rate, d, by the order quantity,

False.

The objective of inventory management is to keep enough inventory on-hand to satisfy customer demand without regard to cost effectiveness.

False.

The order quantity cannot be calculated for a periodic inventory system that experiences variable demand

False.

The quantity discount model evaluates whether using an order size that qualifies for a price discount is always less cost effective than using the economic order quantity.

False.

The time between orders is variable and the order quantity is constant in the periodic inventory system.

False.

With the quantity discount model, the basic EOQ total cost formula is modified to include a term, PD, calculated by taking the purchase price multiplied by annual demand.

True.

With the quantity discount model, the first price point examined is the one associated with the EOQ quantity calculated using the basic model

True.

With the economic order quantity (EOQ) model, the number of orders increases as the order size decreases.

True.

A quantity discount is a price discount available if a predetermined number of units is ordered.

True.

As the level of inventory increases to provide better customer service, quality-related customer service costs decrease.

True.

Buffer inventories provide independence between different stages of the production process.

True.

Carry costs and ordering costs are inversely related.

True.

Continuous inventory systems are also referred to as a fixed-order-quantity system.

True.

Continuous inventory systems often incorporate information technology to improve the speed and accuracy of data entry and retrieval.

True.

Dependent demand items consist of component parts or materials used in the production process to produce a final product.

True.

Drugstores are one example of a business using a periodic inventory system because of their dependence on vendor-managed inventory

True.

Hedging involves buying larger amounts of inventory in anticipation of future price increases.

True.

In ABC analysis, each class of inventory requires different levels of inventory monitoring and control.

True.

Inventory management is concerned with how much to order and when to order.

True.

Maintaining a desired service level influences the level of safety stock.

True.

Seasonal inventory allows a firm to maintain a smooth production flow throughout the year.

True.

The ABC classification system is a method for classifying inventory based on the percentage of total value and the percentage of total quantity.

True.

The ability to effectively satisfy internal or external demand in a timely, efficient manner is referred to as the level of customer service.

True.

The conventional approach to inventory management is to maintain a level of inventory that reflects a compromise between inventory cost and customer service.

True.

The economic order quantity (EOQ) model determines the optimal order size that minimizes total annual inventory costs.

True.

The economic order quantity occurs when the annual carrying cost is equal to the annual ordering cost.

True.

The order cycle is the time between receipts of orders in an inventory cycle.

True.

The periodic inventory system is often preferred for high quantity, low value items

True.

The production quantity model, a variation of the basic EOQ model, assumes non-instantaneous replenishment.

True.

The reorder point is the level of inventory that promts a new order to be placed in a continuous inventory system.

True.

The three basic costs associated with inventory are holding costs, ordering costs and shortage costs

True.

When demand is uncertain, a safety stock is often added to the expected demand during lead time to prevent a stockout.

True.