Chapter 12
An inventory decision rule states "when the inventory level goes down to 14 gearboxes, 100 gearboxes will be ordered." Which of the following statements is true?
14 is the reorder point, and 100 is the order quantity.
Which of the following statements about ABC analysis is false?
ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.
Which of the following is a function of inventory?
All of the above are functions of inventory.
Which of the following statements about the basic EOQ model is true?
All of the above statements are true.
In cycle counting, the frequency of item counting and stock verification usually varies from item to item depending upon the item's classification.
TRUE
In the quantity discount model, it is possible to have a cost-minimizing solution where annual ordering costs do not equal annual carrying costs.
TRUE
In the simple EOQ model, the EOQ would rise if the ordering cost were to increase.
TRUE
No matter what method of inventory management is used, record accuracy is of utmost importance.
TRUE
One advantage of cycle counting is that it eliminates annual inventory adjustments.
TRUE
One advantage of cycle counting is that it maintains accurate inventory records.
TRUE
One advantage of the fixed-period inventory system is that no physical count of inventory items occurs after an item is withdrawn from inventory.
TRUE
One function of inventory is to provide a hedge against inflation.
TRUE
One function of inventory is to take advantage of quantity discounts.
TRUE
Safety stock can serve as a buffer against uneven demand.
TRUE
Service level is the complement of the probability of a stockout.
TRUE
The overall objective of inventory management is balancing the cost of inventory against the cost of providing reasonable levels of customer service.
TRUE
The reorder point is the inventory level at which action is taken to replenish the stocked item.
TRUE
Among the advantages of cycle counting is that it
allows more rapid identification of errors and consequent remedial action than is possible with annual physical inventory
ABC analysis divides on-hand inventory into three classes, generally based upon
annual dollar volume
The EOQ model with quantity discounts attempts to determine
how many units should be ordered
In the basic EOQ model, if the cost of placing an order doubles, and all other values remain constant, the EOQ will
increase by about 41%
A product whose EOQ is 400 experiences a 50% increase in demand. The new EOQ is
increased by less than 50%
All of the following statements about ABC analysis are true except
it states that all items require the same degree of control
A product whose EOQ is 40 experiences a decrease in ordering cost from $90 per order to $10. The revised EOQ is
one-third as large
Cycle counting
provides a measure of inventory accuracy
ABC analysis is based upon the principle that
there are usually a few critical items, and many items that are less critical
The two most basic inventory questions answered by the typical inventory model are
timing and quantity of orders
Which of the following would not generally be a motive for a firm to hold inventories?
to minimize holding costs
Most inventory models attempt to minimize
total inventory based costs
If demand and lead time are uniform and constant, there is no need for safety stock.
TRUE
Which of the following statements about the basic EOQ model is false?
If annual demand were to double, the EOQ would also double.
Which of the following statements regarding the production order quantity model is true?
It relaxes the assumption that all the order quantity is received at one time.
A major challenge in inventory management is to maintain a balance between inventory investment and customer service.
TRUE
A production order quantity problem has a longer period between orders compared to an economic order quantity problem using the same inputs (except for the noninstantaneous receipt).
TRUE
ABC inventory analysis is based on the Pareto principle.
TRUE
Fixed-period systems may have the same review periods for several inventory items.
TRUE
