Chapter 11 (4) OPMA
A company has recorded the last six days of daily demand on a single product they sell. Those values are 37, 115, 93, 112, 73, and 110. The time from when an order is placed to when it arrives at the company from its vendor is 3 days. Assuming the basic fixed-order quantity inventory model fits this situation and no safety stock is needed, which of the following is the reorder point (R)? A. 540 B. 270 C. 115 D. 90 E. 60
B
Assuming no safety stock, what is the re-order point (R) given an average daily demand of 50 units, a lead time of 10 days and 625 units on hand? A. 550 B. 500 C. 715 D. 450 E. 475
B
Assuming no safety stock, what is the reorder point (R) given an average daily demand of 78 units and a lead time of 3 days? A. 421 B. 234 C. 78 D. 26 E. 312
B
Computer inventory systems are often programmed to produce a cycle count notice in which of the following case? A. When the record shows a near maximum balance on hand B. When the record shows positive balance but a backorder was written C. When quality problems have been discovered with the item D. When the item has become obsolete E. When the item has been misplaced in the stockroom
B
If annual demand is 12,000 units, the ordering cost is $6 per order and the holding cost is $2.50 per unit per year, which of the following is the optimal order quantity using the fixed-order quantity model? A. 576 B. 240 C. 120.4 D. 60.56 E. 56.03
B
If annual demand is 35,000 units, the ordering cost is $50 per order and the holding cost is $0.65 per unit per year, which of the following is the optimal order quantity using the fixed-order quantity model? A. 5,060 B. 2,320 C. 2,133 D. 2,004 E. 1,866
B
If annual demand is 50,000 units, the ordering cost is $25 per order and the holding cost is $5 per unit per year, which of the following is the optimal order quantity using the fixed-order quantity model? A. 909 B. 707 C. 634 D. 500 E. 141
B
If it takes a supplier 25 days to deliver an order once it has been placed and the standard deviation of daily demand is 20, which of the following is the standard deviation of usage during lead time? A. 50 B. 100 C. 400 D. 1,000 E. 1,600
B
If it takes a supplier four days to deliver an order once it has been placed and the standard deviation of daily demand is 10, which of the following is the standard deviation of usage during lead time? A. 10 B. 20 C. 40 D. 100 E. 400
B
If it takes a supplier two days to deliver an order once it has been placed and the daily demand for three days has been 120, 124, and 125, which of the following is the standard deviation of usage during lead time? A. About 2.16 B. About 3.06 C. About 4.66 D. About 5.34 E. About 9.30
B
Using the fixed-time period inventory model, and given an average daily demand of 200 units, 4 days between inventory reviews, 5 days for lead time, 120 units of inventory on hand, a "z" of 1.96, and a standard deviation of demand over the review and lead time of 3 units, which of the following is the order quantity? A. About 1,086 B. About 1,686 C. About 1,806 D. About 2,206 E. About 2,686
B
Using the probability approach to determine an inventory safety stock and wanting to be 95 percent sure of covering inventory demand, which of the following is the number of standard deviations necessary to have the 95 percent service probability assured? A. 1.28 B. 1.64 C. 1.96 D. 2.00 E. 2.18
B
When developing inventory cost models, which of the following are not included as costs to place an order? A. Phone calls B. Taxes C. Clerical D. Calculating quantity to order E. Postage
B
Which of the following is a perpetual system for inventory management? A. Fixed-time period B. Fixed-order quantity C. P model D. First-in-first-out E. The wheel of inventory
B
Which of the following is one of the categories of manufacturing inventory? A. Economic Order Inventory B. Work-in-process C. Quality units D. JIT Inventory E. Re-order point
B
Which of the following is usually included as an inventory holding cost? A. Order placing B. Breakage C. Typing up an order D. Quantity discounts E. Annualized cost of materials
B
A company has recorded the last five days of daily demand on their only product. Those values are 120, 125, 124, 128, and 133. The time from when an order is placed to when it arrives at the company from its vendor is 5 days. Assuming the basic fixed-order quantity inventory model fits this situation and no safety stock is needed, which of the following is the reorder point (R)? A. 120 B. 126 C. 630 D. 950 E. 1,200
C
Firms keep supplies of inventory for which of the following reasons? A. To maintain dependence of operations B. To provide a feeling of security for the workforce C. To meet variation in product demand D. To hedge against wage increases E. In case the supplier changes the design
C
If a vendor has correctly used marginal analysis to select their stock levels for the day (as in the newsperson problem), and the profit resulting from the last unit being sold (Cu) is $120 and the loss resulting from that unit if it is not sold (Co) is $360, which of the following is the probability of the last unit being sold? A. Greater than 0.90 B. Greater than 0.85 C. Greater than 0.75 D. Greater than 0.25 E. None of the above
C
The Pareto principle is best applied to which of the following inventory systems? A. EOQ B. Fixed-time period C. ABC classification D. Fixed-order quantity E. Single-period ordering system
C
Using the fixed-time period inventory model, and given an average daily demand of 15 units, 3 days between inventory reviews, 1 day for lead time, 30 units of inventory on hand, a service probability of 98 percent, and a standard deviation of daily demand is 3 units, which of the following is the order quantity? A. About 30.4 B. About 36.3 C. About 42.3 D. About 56.8 E. About 59.8
C
Which of the following is an assumption of the basic fixed-order quantity inventory model? A. Lead times are averaged B. Ordering costs are variable C. Price per unit of product is constant D. Back orders are allowed E. Stock-out costs are high
C
Which of the following is not an assumption of the basic fixed-order quantity inventory model? A. Ordering or setup costs are constant B. Inventory holding cost is based on average inventory C. Diminishing returns to scale of holding inventory D. Lead time is constant E. Demand for the product is uniform throughout the period
C
Which of the following is the set of all cost components that make up the fixed-order quantity total annual cost (TC) function? A. Annual purchasing cost, annual ordering cost, fixed cost B. Annual holding cost, annual ordering cost, unit cost C. Annual holding cost, annual ordering cost, annual purchasing cost D. Annual lead time cost, annual holding cost, annual purchasing cost E. Annual unit cost, annual set up cost, annual purchasing cost
C
Which of the following values for "z" should we use in as safety stock calculation if we want a service probability of 98%? A. 1.64 B. 1.96 C. 2.05 D. 2.30 E. None of the above
C
You would like to use the fixed-time period inventory model to compute the desired order quantity for a company. You know that vendor lead time is 10 days and the number of days between reviews is 15. Which of the following is the standard deviation of demand over the review and lead time period if the standard deviation of daily demand is 10? A. 25 B. 40 C. 50 D. 73 E. 100
C
A company wants to determine its reorder point (R). Demand is variable and they want to build a safety stock into R. If the average daily demand is 12, the lead time is 5 days, the desired "z" value is 1.96, and the standard deviation of usage during lead time is 3, which of the following is the desired value of R? A. About 6 B. About 16 C. About 61 D. About 66 E. About 79
D
A company wants to determine its reorder point (R). Demand is variable and they want to build a safety stock into R. The company wants to have a service probability coverage of 95 percent. If average daily demand is 8, lead time is 3 days, and the standard deviation of usage during lead time is 2, which of the following is the desired value of R? A. About 17.9 B. About 19.7 C. About 24.0 D. About 27.3 E. About 31.2
D
In making any decision that affects inventory size, which of the following costs do not need to be considered? A. Holding costs B. Setup costs C. Ordering costs D. Fixed costs E. Shortage costs
D
Using the ABC classification system for inventory, which of the following is a true statement? A. The "C" items are of moderate dollar volume B. You should allocate about 50 % of the dollar volume to "B" items C. The "A" items are of low dollar volume D. The "A" items are of high dollar volume E. Inexpensive and low usage items are classified as "C" no matter how critical
D
Which of the following are fixed-time period inventory models? A. The EOQ model B. The least cost method C. The Q model D. Periodic system model E. Just-in-time model
D
Which of the following is not necessary to compute the order quantity using the fixed-time period model with safety stock? A. Forecast average daily demand B. Safety stock C. Inventory currently on hand D. Ordering cost E. Lead time in days
D
Which of the following is not one of the categories of manufacturing inventory? A. Raw materials B. Finished products C. Component parts D. Just-in-time E. Supplies
D
To take into consideration demand uncertainty in reorder point (R) calculations, what do we add to the product of the average daily demand and lead time in days when calculating the value of R? A. The product of average daily demand times a standard deviation of lead time B. A "z" value times the lead time in days C. The standard deviation of vendor lead time times the standard deviation of demand D. The product of lead time in days times the standard deviation of lead time E. The product of the standard deviation of demand variability and a "z" score relating to a specific service probability.
E
Using the fixed-order quantity model, which of the following is the total ordering cost of inventory given an annual demand of 36,000 units, a cost per order of $80 and a holding cost per unit per year of $4? A. $849 B. $1,200 C. $1,889 D. $2,267 E. $2,400
E
When material is ordered from a vendor, which of the following is not a reason for delays in the order arriving on time? A. Normal variation in shipping time B. A shortage of material at the vendor's plant causing backlogs C. An unexpected strike at the vendor's plant D. A lost order E. Redundant ordering systems
E
Which of the following is not a reason to carry inventory? A. To provide a safeguard for variation in raw material delivery time B. To take advantage of economic purchase-order size C. To maintain independence of operations D. To meet variation in product demand E. To keep the stock out of the hands of competitors
E
Which of the following is the symbol used in the textbook for the cost of placing an order in the fixed-order quantity inventory model? A. C B. TC C. H D. Q E. S
E
Dependent demand inventory levels are usually managed by calculations using calculus-driven, cost-minimizing models.
False
Fixed-order quantity inventory models are "time triggered."
False
Fixed-order quantity systems assume a random depletion of inventory, with less than an immediate order when a reorder point is reached.
False
Fixed-time period inventory models are "event triggered."
False
If demand for an item is normally distributed we plan for demand to be twice the average demand and carry 2 standard deviations worth of safety stock inventory.
False
In a price break model of lot sizing the lowest cost quantity is always feasible.
False
In inventory models, high holding costs tend to favor high inventory levels.
False
One of the basic purposes of inventory analysis in manufacturing and stockkeeping services is to determine the level of quality to specify.
False
One of the drivers of the direct-to-store (direct distribution) approach is the decrease in trucking industry regulation.
False
Price-break models deal with the fact that the selling price of an item generally increases as the order size increases.
False
Safety stock is not necessary in any fixed-time period system.
False
Shortage costs are precise and easy to measure.
False
The average cost of inventory in the United States is 20 to 25 percent of its value.
False
The costs associated with reduced inventory results in lower profits.
False
The fixed-order quantity inventory model favors less expensive items because average inventory is lower.
False
The fixed-time period inventory system has a smaller average inventory than the fixed-order quantity system because it must also protect against stockouts during the review period when inventory is checked.
False
The optimal stocking decision in inventory management, when using marginal analysis, occurs at the point where the benefits derived from carrying the next unit are more than the costs for that unit.
False
The standard fixed-time period model assumes that inventory is never counted but determined by EOQ measures.
False
What is the term for there being no relationship between demands for various items?
Independent demand
An inventory system is a set of policies and controls that monitors levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be.
True
Cycle counting is a physical inventory-taking technique in which inventory is counted on a frequent basis rather than once or twice a year.
True
Fixed-order quantity inventory models are "event triggered."
True
Fixed-order quantity inventory systems determine the reorder point, R and the order quantity, Q values.
True
Fixed-time period inventory models are "time triggered."
True
Fixed-time period inventory models generate order quantities that vary from time period to time period, depending on the usage rate.
True
If the cost to change from producing one product to producing another were zero the lot size would be very small.
True
In a price break model of lot sizing, to find the lowest-cost order quantity, it is sometimes necessary to calculate the economic order quantity for each possible price and to check to see whether the lowest cost quantity is feasible.
True
In a price break model of lot sizing, to find the lowest-cost order quantity, it is sometimes necessary to calculate the economic order quantity for each possible price.
True
In inventory models, high holding costs tend to favor low inventory levels and frequent replenishment.
True
In the fixed-time period model it is necessary to determine the inventory currently on hand to calculate the size of the order to place with a vendor.
True
Inventory is defined as the stock of any item or resource used in an organization.
True
One of the basic purposes of inventory analysis in manufacturing and stockkeeping services is to determine how large the orders to vendors should be.
True
One of the basic purposes of inventory analysis in manufacturing and stockkeeping services is to specify when items should be ordered.
True
One of the daily, delicate balancing acts that Logistics managers have to perform involves the trade-off between customer satisfaction and cost to serve.
True
One of the daily, delicate balancing acts that Logistics managers have to perform involves the trade-off between inventory costs and the cost of stock-outs.
True
One of the daily, delicate balancing acts that Logistics managers have to perform involves the trade-off between transportation costs and fulfillment speed.
True
One of the drivers of the direct-to-store (direct distribution) approach is the increase in global sourcing.
True
One of the drivers of the direct-to-store (direct distribution) approach is the upstream migration of value-added logistics services.
True
Price-break models deal with discrete or step changes in price as order size changes rather than a per-unit change.
True
Price-break models deal with the fact that the selling price of an item varies with the order size.
True
Safety stock can be computed when using the fixed-order quantity inventory model by multiplying a "z" value representing the number of standard deviations to achieve a service level or probability by the standard deviation of periodic demand.
True
Safety stock can be defined as the amount of inventory carried in addition to the expected demand.
True
Savings from reduced inventory results in increased profit.
True
Some inventory situations involve placing orders to cover only one demand period or to cover short-lived items at frequent intervals.
True
The computation of a firm's inventory position is found by taking the inventory on hand and adding it to the on-order inventory, and then subtracting back-ordered inventory.
True
The fixed-order quantity inventory model is more appropriate for important items such as critical repair parts because there is closer monitoring and therefore quicker response to a potential stockout.
True
The fixed-order quantity inventory model requires more time to maintain because every addition or withdrawal is logged.
True
The key difference between a fixed-order quantity inventory model, where demand is known and one where demand is uncertain is in computing the reorder point.
True
Using the probability approach we assume that the demand over a period of time is normally distributed.
True
When stocked items are sold, the optimal inventory decision using marginal analysis is to stock that quantity where the probable profit from the sale or use of the last unit is equal to or greater than the probable losses if the last unit remains unsold.
True
You should visualize inventory as stacks of money sitting on forklifts, on shelves, and in trucks and planes while in transit.
True
Using the fixed-order quantity model, what is the total ordering cost of inventory given an annual demand of 36,000 units, a cost per order of $40 and a holding cost per unit per year of $45?
$5,692
Using the fixed-time period inventory model, and given an average daily demand of 300 units, 4 days between inventory reviews, 5 days for lead time, 1,200 units of inventory on hand, a "z" of 1.96, and a standard deviation of demand over the review and lead time of 12 units, what quantity should be ordered?
1,525
If annual demand is 8,000 units, the ordering cost is $20 per order and the holding cost is $12.50 per unit per year, what is the optimal order quantity using the fixed-order quantity inventory model?
160
If it takes a supplier 10 days to deliver an order once it has been placed and the standard deviation of daily demand is 14, what is the standard deviation of usage during lead time?
44.27
Assuming no safety stock, what is the reorder point (R) given an average daily demand of 100 units and a lead time of 5 days?
500
A company is planning for its financing needs and uses the basic fixed-order quantity inventory model. Which of the following is the total cost (TC) of the inventory given an annual demand of 10,000, setup cost of $32, a holding cost per unit per year of $4, an EOQ of 400 units, and a cost per unit of inventory of $150? A. $1,501,600 B. $1,498,200 C. $500,687 D. $499,313 E. None of the above
A
If a vendor has correctly used marginal analysis to select their stock levels for the day (as in the newsperson problem), and the profit resulting from the last unit being sold (Cu) is $0.90 and the loss resulting from that unit if it is not sold (Co) is $0.50, which of the following is the probability of the last unit being sold? A. Greater than 0.357 B. Greater than 0.400 C. Greater than 0.556 D. Greater than 0.678 E. None of the above
A
In order to determine the standard deviation of usage during lead time in the reorder point formula for a fixed-order quantity inventory model which of the following must be computed first? A. Standard deviation of daily demand B. Number of standard deviations for a specific service probability C. Stockout cost D. Economic order quantity E. Safety stock level
A
Using the fixed-time period inventory model, and given an average daily demand of 75 units, 10 days between inventory reviews, 2 days for lead time, 50 units of inventory on hand, a service probability of 95 percent, and a standard deviation of demand over the review and lead time of 8 units, which of the following is the order quantity? A. 863 B. 948 C. 1,044 D. 1,178 E. 4,510
A
Which of the following are fixed-order quantity inventory models? A. Economic order quantity model B. The ABC model C. Periodic replenishment model D. Cycle counting model E. P model
A
Which of the following are the recommended percentage groupings of the ABC classifications of the dollar volume of products? A. A items get 15%, B items get 35%, and C items get 50% B. A items get 15%, B items get 45%, and C items get 40% C. A items get 25%, B items get 35%, and C items get 40% D. A items get 25%, B items get 15%, and C items get 60% E. A items get 20%, B items get 30%, and C items get 50%
A
Which of the following is not included as an inventory holding cost? A. Annualized cost of materials B. Handling C. Insurance D. Pilferage E. Storage facilities
A
You would like to use the fixed-time period inventory model to compute the desired order quantity for a company. You know that vendor lead time is 5 days and the number of days between reviews is 7. Which of the following is the standard deviation of demand over the review and lead time if the standard deviation of daily demand is 8? A. About 27.7 B. About 32.8 C. About 35.8 D. About 39.9 E. About 45.0
A
