Chapter 12

Which of the following are assumptions of the EOQ model?

Annual demand is known. Lead time is known.

What does 'z' represent in the safety stock formula?

The stockout risk a manager is willing to accept.

A service level of 95% implies a 95% probability that

demand will not exceed supply during leadtime.

Inventory is a

stock or store of goods.

One reason firms carry inventory is to decouple operations

that is, to use inventory as a buffer between successive internal operations to avoid disruption in the event of equipment breakdowns or accidents.

M

A matches ±0.2 percent B matches ±1 percent C matches ±5 percent

Which of the following statements about inventory costs is/are true? Multiple select question.

Holding costs can include the cost of insurance. Ordering and setup costs are treated the same.

Which of the following is NOT a normal function of inventory?

To provide an investment vehicle.

One of the goals is to achieve good customer service. One of the goals is to keep inventory costs within reasonable bounds. Inventory managers must decide how much to order.

To take advantage of existing storage space.

Which of the following statements about quantity discount models is/are true?

Total cost must include product cost to evaluate options. The optimal quantity may not be the same as the EOQ.

Which of the following statements about inventory turnover is not true?

Turnover is the ratio of sales to inventory.

Which of the following is/are the basic issue/s of inventory management?

When to order How much to order

What are the key questions for management concerning cycle counting?

Who should count it? When should cycle counting be performed? How much accuracy is needed?

Shortage

cost is incurred by a firm when demand for inventory exceeds supply.

The overall objective of inventory management is to achieve satisfactory levels of ______ while keeping inventory ______ reasonable.

customer service; costs

In order to rank inventory items in an A-B-C analysis, we arrange annual dollar values for all items in ______.

descending order

Because firms tend to have about 30 percent of current assets invested in inventory, a reduction in inventories can result in a significant ______.

increase in ROI

The inventory models in this chapter relate primarily to ______ items, that is, items that are ready to be sold or used.

independent-demand

How much to order, and when to order, are the two basic issues in an

inventory ordering policy

How much to order, and when to order, are the two basic issues in an _______.

inventory ordering policy

Cycle counting

is a physical count of items in inventory used to reduce the discrepancies between inventory records and the actual items on hand.

Inventory Turnover

is is the ratio of average cost of goods sold to average inventory investment.

MRO stands for ______ inventory.

maintenance and repairs

With inventory turnover, a higher

ratio is better, because that implies more efficient use of inventory.

One of the reasons a firm carries inventory is to ______, that is, to achieve constant output and use inventory to meet overly high requirements during seasonal periods.

smooth production requirements

: Cycle

stock is the amount of inventory required to meet expected demand.

One of the reasons a firm carries inventory is to smooth production requirements

that is, to achieve constant output and use inventory to meet overly high requirements during seasonal periods.

Service level is the probability that demand will not exceed supply.

Service level = 100% -stock out risk

Manufacturing firms have used inventoriesas buffers between successive operations to maintain continuity of production that would otherwise be disrupted by events such as breakdowns of equipment and accidents that cause a portion of the operation to shut down temporarily.

T

The A-B-C approach classifies inventory items according to a measure of importance such as annual dollar value.

T

With inventory turnover, a higher ratio is better, because that implies more efficient use of inventory. Multiple choice question.

T

Perpetual

inventory systems continuously keep track of changes to the inventory system and a fixed quantity is ordered when the amount on hand reaches a predetermined level.

Periodic

inventory systems take physical inventory counts at fixed intervals and decide how much to reorder of each item.

Which of the following statements about inventory management is/are true?

One of the goals is to achieve good customer service. One of the goals is to keep inventory costs within reasonable bounds. Inventory managers must decide how much to order.

Which of these is NOT a factor that determines the appropriate amount of safety stock?

Average quantity discount

Which statement about holding costs, also known as carrying costs, are correct?

Carrying costs can be stated as a constant. Carrying costs can be stated as a percentage of item price,

At which point in an order cycle is the risk of a stockout occurring the greatest?

During the lead time for an order that has been placed

Which of the following types of inventory are items that are ready to be sold?

Independent-demand items

Which of the following statements about the A-B-C approach is/are true? Multiple select question.

It is intended to help firms allocate control efforts based on the relative importance of items in inventory. Its purpose is to identify inventory items that are the most important to the business. Approximately 10% to 20% of items account for about 60% to 70% of annual dollar value.

Which statement is true for the economic production quantity (EPQ) model?

It is used when production occurs in batches.

Which of the following statements about inventory management is/are true?

One of the goals is to achieve good customer service. Inventory managers must decide how much to order. One of the goals is to keep inventory costs within reasonable bounds.

Which of the following statements about inventory costs is/are true?

Ordering and setup costs are treated the same. Holding costs can include the cost of insurance.

Which of the following statements about inventory control systems is/are not true?

Perpetual inventory systems are always able to accurately report inventory levels. UPCs and point-of-sale systems do not work well together. An advantage of periodic systems is the lack of safety stock required.

In the economic production quantity (EPQ) model

SETUP costs are analogous to ordering costs

Which type of inventory is held to reduce the probability of a stockout?

Safety stock

Which of the following statements about reorder point ordering is/are true?

Safety stock is required if lead time is variable. Safety stock is required if demand is variable.

Which is the definition of holding cost in the EOQ model?

The cost to carry a single unit in inventory for a length of time.

Which is the definition of holding cost in the EOQ model? Multiple choice question.

The cost to carry a single unit in inventory for a length of time.

Which of the following are considered types of inventory in a manufacturing facility?

Work-in-process Finished goods In-transit goods Maintenance and repairs Raw materials

Manufacturing firms have used inventory

as buffers between successive operations to maintain continuity of production that would otherwise be disrupted by events such as breakdowns of equipment and accidents that cause a portion of the operation to shut down temporarily.