SCM 309 quiz 6

In making inventory decisions, the purpose of the basic Economic Order Quantity (EOQ) model is to: -minimize ordering costs -minimize customer dissatisfaction -minimize carrying costs -minimize the sum of the carrying costs and ordering costs.

-minimize the sum of the carrying costs and ordering costs.

Which of the following would refer to the 80/20 rule when applied to the ABC inventory control system? -80 percent of the unit cost accounts for 20 percent of the items -20 percent of the items account for 8- percent of the tasks -80 percent of the items account for 20 percent of the groups -80 percent of the total annual $ usage is accounted for, by 20 percent of the items

80 percent of the total annual $ usage is accounted for, by 20 percent of the items

An assumption of the basic Economic Order Quantity (EOQ) is: -Demand is unknown -Demand is variable -An item is produced continuously -An item is purchased in lots or batches

An item is purchased in lots or batches

You order a box of pencils from an office supply store and use them one-by-one until they are all gone. The pencils are: -Safety stock -Cycle stock -in transit stock -usage stock

Cycle stock

Independent demand is the: -Internal demand for all end-item parts and materials -absolute demand for all items -Forecasted demand for purchased items -Demand for a firm's end products

Demand for a firm's end products

Which of the following is true under the Periodic Review System? -it is more expensive to administer compared to the Continuous Review System -a lower level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system -the only uncertainty is the magnitude of demand during the delivery lead time -a higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system

a higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system

Which of the following factors is (are) NOT included in the ordering cost? -obsolescence -purchasing department overhead costs -developing and sending purchase orders -bill paying

obsolescence

When demand and delivery lead time are known and constant, the recorder point is equal to: -safety stocks -economic order quantity -demand multiplied by the delivery lead -demand multiplied by the delivery lead time plus the safety stock

demand multiplied by the delivery lead

Which one of the following descriptions best defines the cycle service level as a measure of customer service? -the preferred proportion of annual demand instantaneously filled from stock -desired probability of not running out of stock in any one inventory cycle -the number of stockout tolerated per year -the preferred proportion of days in the year when an item is in stock

desired probability of not running out of stock in any one inventory cycle

Which of the following factors is (are) NOT included in the carrying cost? -cost of capital -obsolescence -inspecting incoming inventory -spoilage

inspecting incoming inventory

What of the following is a disadvantage of carrying too much inventory? -it leads to higher annual inventory ordering costs -it leads to lower average finished goods inventories -it creates an unnecessary waste of scare resources -it increases the need to purchase items

it creates an unnecessary waste of scare resources

As the service level increases, -safety stock decreases at a decreasing rate -safety stock increases at a decreasing rate -safety stock decreases at an increasing rate -safety stock increases at an increasing rate

safety stock increases at an increasing rate

For the basic Economic Order Quantity (EOQ) model, which of the following relationship is NOT true? -Average cycle inventory level equals one-half the order size -the average dollar level of inventory equals unit price multiplied by order quantity -the optimal number of orders per year equals annual demand divided by the EOQ -At EOQ, annual ordering cost equal annual carrying cost

the average dollar level of inventory equals unit price multiplied by order quantity

Which of the following statements hold true for safety stock? -the lower the opportunity cost of the funds invested in inventory, the smaller the safety stock needed -the greater the uncertainty associated with forecasted demand, the lower the level of safety stock needed -the higher the profit margin per unit, the lower the safety stock necessary -the greater the risk of running out of stock, the larger the safety stock needed

the greater the risk of running out of stock, the larger the safety stock needed

Which one of the following is NOT a reason for firms to carry inventory? -to increase production/ setup costs -to meet variations in products demand -to allow for production scheduling flexibility -to take advantage of quantity discounts

to increase production/ setup costs