Management OM Ch. 12 quynh

In ABC analysis, which of the following items typically comprise 60 to 80 percent of total dollar usage but only 10 to 30 percent of the items? a. A b. B c. C d. B and C

a. A

In a fixed order quantity (FOQ) system, which of the following is TRUE when interest rates increase and all other costs remain the same? a. Cycle inventory decreases b. Order quantity increases c. Order costs increase d. Safety stock quantity increases

a. Cycle inventory decreases (as Ch increases, EOQ decreases so Q/2 decreases)

Which of the following statements concerning the economic order quantity (EOQ) model is NOT TRUE when the unit holding cost increases? a. The economic order quantity will decrease. b. The number of orders per year will increase. c. Annual ordering costs will increase. d. Sunk costs will decrease.

a. The economic order quantity will decrease.

Which is NOT a feature of the periodic review system? a. The order quantity, Q, is always fixed. b. The inventory position need not be monitored on a continuous basis. c. The review period, T, is constant. d. Placing an order is time-triggered.

a. The order quantity, Q, is always fixed.

Which of the following is NOT TRUE regarding inventory management? a. The two fundamental inventory decisions are: where to order and what to order. b. Inventory management applies to goods and to services. c. Different types of inventory characteristics require different approaches for control. d. Stock-keeping units (SKUs) are often aggregated or partitioned into groups with similar characteristics or dollar value.

a. The two fundamental inventory decisions are: where to order and what to order.

Costs associated with configuring tools, equipment, and machines within a factory to produce an item are components of _____ costs. a. ordering b. inventory-holding c. shortage d. unit

a. ordering

Demand that is stable over time is called _____ demand. a. static b. dynamic c. statistical d. average

a. static

In a fixed-quantity system (FQS), as the reorder point increases: a. the safety stock increases. b. the safety stock decreases. c. the number of orders increases. d. the number of orders decreases.

a. the safety stock increases

Two fundamental inventory decisions are: when to order and how much to order. Which of the following statement is TRUE about fixed-quantity (FQS) and fixed-period (FPS) inventory systems? a. An FPS orders a fixed-period quantity when the inventory position reaches or passes the reorder point (r). b. An FPS must cover a time period of T + L to cover the risk of a stockout. c. An FPS places an order for an economic order quantity (EOQ) on a continuous basis. d. An FQS places an order to replenish the inventory position up to a target level (M) when the inventory position reaches the reorder point (r).

b. An FPS must cover a time period of T + L to cover the risk of a stockout.

A _____ is defined as the inability to satisfy the demand for an item. a. Reorder point b. Stockout c. Lost sale d. Backorder

b. Stockout

Which of the following statements is TRUE? a. Fixed costs associated with any ordering are relevant. b. Sunk costs associated with any ordering are irrelevant. c. Variable costs associated with inventory holding are irrelevant. d. Variable costs associated with ordering are irrelevant.

b. Sunk costs associated with any ordering are irrelevant.

_____ inventory acts as a buffer between workstations in flow shops or departments in job shops to enable the operating process to continue. a. Raw materials b. Work-in-process c. Cycle stock d. Safety stock

b. Work-in-process

_____ inventory consists of partially completed products in various stages of completion that are awaiting further processing. a. Raw materials b. Work-in-process (WIP) c. Cycle d. Safety stock

b. Work-in-process (WIP)

A fixed-period (FPS) inventory system: a. orders a fixed-period quantity when the inventory position reaches or drops below the reorder point (r). b. chooses a replenishment level (M) which includes the demand during the review period and lead time, plus any safety stock. c. maintains a constant order quantity every review period. d. assumes that the demand for an item is constant and continuous, and that the items are withdrawn at a constant rate.

b. chooses a replenishment level (M) which includes the demand during the review period and lead time, plus any safety stock.

Demand that varies over time is called _____ demand. a. static b. dynamic c. statistical d. average

b. dynamic

Costs associated with backordering products are called _____ costs. a. holding b. shortage c. ordering d. setup

b. shortage

In ABC inventory analysis, which of the following is TRUE of class A items? a. Class A items need not be closely controlled. b. Class A items account for 5 to 15 percent of the total dollar value. c. Class A items account for a relatively small percentage of total items. d. Class A items have a relatively low volume and low unit costs compared to Class C items.

c. Class A items account for a relatively small percentage of total items.

In ABC inventory analysis, which of the following is TRUE of class C items? a. Close control of Class C items (more than of class A or class B items) is required. b. Class C items are critical items that must be monitored with a fixed-period system as they have low unit costs and a high volume. c. Class C items make up a lower percentage of total dollar value than either class A or class B items. d. Class C items make up for 10 to 20 percent of inventory items and 60 to 80 percent of the total dollar usage.

c. Class C items make up a lower percentage of total dollar value than either class A or class B items.

Which of the following is NOT a key assumption underlining the classic economic order quantity (EOQ) model? a. The entire order quantity arrives in the inventory at one time. b. There are only two types of relevant costs: order/setup and inventory holding. c. Demand is assumed to be stochastic. d. Stockouts are not allowed.

c. Demand is assumed to be stochastic.

Which of the following statements is TRUE? a. Inventory is any physical asset held for future use or sale. b. When using ABC analysis, C items require close control by operations managers as they account for a large dollar value but a relatively small percentage of total items. c. Dependent demand is directly related to the demand of other stock-keeping units (SKUs) and can be calculated without needing to be forecasted. d. Stockouts occur in a fixed-quantity system (FQS) whenever the lead-time demand exceeds the replenishment level (M).

c. Dependent demand is directly related to the demand of other stock-keeping units (SKUs) and can be calculated without needing to be forecasted.

Which of the following statements is NOT TRUE? a. Inventory is any asset held for future use or sale. b. When using ABC analysis, "C" items comprise of a small dollar value. c. Stock keeping unit (SKU) is a single item or asset stored at multiple locations. d. The lead time is the time between placement of an order and its receipt.

c. Stock keeping unit (SKU) is a single item or asset stored at multiple locations.

Which of the following statements is NOT TRUE regarding the fixed-period system (FPS)? a. The time between orders is constant, but the order quantity might vary. b. An order is time-triggered, not inventory-triggered. c. The optimal replenishment level includes the demand during the review period, plus any desired safety stock. d. When demand is not certain, the FPS addresses stockouts by adding safety stock to the expected demand during time T + L.

c. The optimal replenishment level includes the demand during the review period, plus any desired safety stock.

Backorders: a. result from lost sales. b. have little financial impact. c. may occur as a result of a stockout. d. force a customer to purchase elsewhere.

c. may occur as a result of a stockout.

Average inventory in the economic order quantity (EOQ) model is defined as: a. the order quantity divided by the number of inventory cycles per year. b. the annual usage divided by the number of inventory cycles per year. c. one-half of the order quantity. d. one-half of the annual usage.

c. one-half of the order quantity.

Demand that incorporates uncertainty is called _____ demand. a. statistical b. average c. stochastic d. deterministic

c. stochastic

Which of the following statements is TRUE? a. The level of safety stock maintained decreases when the desired cycle service level increases. b. The level of safety stock maintained decreases when the standard deviation of demand during lead time increases. c. In a fixed-period inventory system, the value of Q is kept the same from one cycle to another. d. In a fixed-order-quantity system, the reorder point is the average demand during the lead time, plus the additional safety stock when demand is uncertain.

d. In a fixed-order-quantity system, the reorder point is the average demand during the lead time, plus the additional safety stock when demand is uncertain.

Which of the following is NOT a component of holding cost? a. Tax b. Insurance c. Material handling d. Order processing

d. Order processing

Inventory position is computed using all the following EXCEPT: a. on-hand quantity. b. scheduled receipts. c. backorders. d. lead-time demand.

d. lead-time demand.

Independent demand: a. can be calculated. b. is related to other stock-keeping units (SKUs). c. is also called finished-goods inventory. d. needs to be forecasted.

d. needs to be forecasted.

Additional inventory that is kept over and above the average amount required to meet demand is called _____ inventory. a. seasonal b. work-in-process c. finished goods d. safety stock

d. safety stock