Operations Quiz 7 Questions
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. Stock-out cost D. Economic order quantity E. Safety stock level
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 percent, B items get 35 percent, and C items get 50 percent. B. A items get 15 percent, B items get 45 percent, and C items get 40 percent. C. A items get 25 percent, B items get 35 percent, and C items get 40 percent. D. A items get 25 percent, B items get 15 percent, and C items get 60 percent. E. A items get 20 percent, B items get 30 percent, and C items get 50 percent.
A
Which of the following is a fixed-order-quantity inventory model? 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 is not included as an inventory holding cost? A. Annualized cost of materials B. Handling C. Insurance D. Pilferage E. Storage facilities
A
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
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 (12 x 64) = 27.71.
If a vendor has correctly used marginal analysis to select its stock levels for the day (as in the newsperson problem in the text), and if 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 these
A Because P is the probability that the unit will not be sold and 1 - P is the probability of it being sold, the answer to this question is 1 - 0.643 or 0.357.
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 these
A Q = 400. Average inventory = Q/2 = 200. Holding cost/year = $4. Thus, annual holding cost = $800. Annual set-up cost = 10,000/400 = 25 x $32 = 800. Demand x cost per unit = 10,000 x $150 = 1,500,000. Hence, TC = $1,500,000 + 800 + 800 = $1,501,600.
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 q = 75 x (10 + 2) + (1.64 x 8) - 50 = 900 + 13.12 - 50 = 863.12 = 863.
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
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 is not included as a 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 one of the categories of manufacturing inventory? A. Economic order inventory B. Work-in-process C. Quality units D. JIT inventory E. Reorder 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
Assuming no safety stock, what is the reorder 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 20.4; 50 x 10 = 500.
A company has recorded the last six days of daily demand on a single product it sells. 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 37 + 115 + 93 + 112 + 73 + 110/6 = 90. Lead time = 3 days, so the reorder point is 90 x 3 = 270.
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 Q = 2,320.5 = Square root of (2 x 35,000 x 50/0.65).
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 Q = 240 = Square root of (2 x 12,000 x 6/2.5).
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 Q = 707.1 = Square root of (2 x 50,000 x 25/5).
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 See Equation 20.4; 78 x 3 = 234.
If it takes a supplier 2 days to deliver an order once it has been placed and the daily demand for 3 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 The standard deviation (Equation 20.6) of daily demand = Square root of (14/3) = 2.1602. This number squared is 4.6667. The square root of 2 days x 4.6667 = the square root of 9.3333 or 3.055.
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 q = [200 x (5 + 4) + 1.96 x 3] - 120 = 1,800 + 5.88 - 120 = 1,685.88 = about 1,686.
If it takes a supplier 4 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 the standard deviation of usage during lead time is equal to the square root of the sums of the variances of the number of days of lead time. Because variance equals standard deviation squared, the standard deviation of usage during lead time is the square root of [4 x (10 x 10)] = square root of 400 = 20.
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 the standard deviation of usage during lead time will be the square root of [25 x (20 x 20)] = square root of 10,000 = 100.
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
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
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. Returns to scale of holding inventory are diminishing. D. Lead time is constant. E. Demand for the product is uniform throughout the period.
C
Which of the following values for z should we use in as a safety stock calculation if we want a service probability of 98 percent? A. 1.64 B. 1.96 C. 2.05 D. 2.30 E. None of these
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 (25 x 100) = 50.
A company has recorded the last five days of daily demand on its 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 120 + 125 + 124 + 128 + 133/5 = 126. Lead time = 5 days, so the reorder point is 126 x 5 = 630.
If a vendor has correctly used marginal analysis to select its stock levels for the day (as in the newsperson problem in the text), and if 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 these
C P ≤ Cu/(Cu + Co) = 120/480 = 0.25. Because P is the probability that the unit will not be sold and 1 - P is the probability of it being sold, the answer to this question is 1 - 0.25 or 0.75.
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 Total annual cost = Annual purchase cost + Annual ordering cost + Annual holding cost.
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 q = 15 x (3 + 1) + (2.05 x 6) - 30 = 60 + 12.3 - 30 = 42.3.
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 percent 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 is a fixed-time-period inventory model? 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 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
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
A company wants to determine its reorder point (R). Demand is variable and the company wants 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 (Average daily demand x Number of days of lead time) + (Standard deviation during lead time) x (Desired z score) = (8 x 3) + (2 x 1.64) = 24 + 3.28 = 27.28 = about 27.3 units.
A company wants to determine its reorder point (R). Demand is variable and the company wants 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 Average daily demand x Number of days of lead time) + (Standard deviation during lead time) x (Desired z score) = (12 x 5) + (3 x 1.96) = 60 + 5.88 = 65.88 = 66 units.
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
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
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 Q = 1,200 = Square root of (2 x 36,000 x 80/4). Number of orders per year = 36,000/1,200 = 30 x $80 = $2,400.
Dependent demand inventory levels are usually managed by calculations using calculus-driven, cost-minimizing models
F
Fixed-order-quantity inventory models are "time triggered."
F
Fixed-order-quantity systems assume a random depletion of inventory, with less than an immediate order when a reorder point is reached
F
Fixed-time-period inventory models are "event triggered."
F
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.
F
In a price-break model of lot sizing, the lowest cost quantity is always feasible
F
In inventory models, high holding costs tend to favor high inventory levels
F
One of the basic purposes of inventory analysis in manufacturing and stock keeping services is to determine the level of quality to specify.
F
One of the drivers of the direct-to-store (direct distribution) approach is the decrease in trucking industry regulation.
F
Price-break models deal with the fact that the selling price of an item generally increases as the order size increases.
F
Safety stock is not necessary in any fixed-time-period system.
F
Shortage costs are precise and easy to measure.
F
The "sawtooth effect," named after turn-around artist Al "Chainsaw" Dunlap, is the severe reduction of inventory and service levels that occurs when a firm has gone through a hostile takeover.
F
The average cost of inventory in the United States is 20 to 25 percent of its value.
F
The costs associated with reduced inventory results in lower profits.
F
The fixed-order-quantity inventory model favors less expensive items because average inventory is lower.
F
The fixed-time-period inventory system has a smaller average inventory than the fixed-order-quantity system because it must also protect against stock outs during the review period when inventory is checked.
F
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.
F
The standard fixed-time-period model assumes that inventory is never counted but determined by EOQ measures.
F
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.
T
Cycle counting is a physical inventory-taking technique in which inventory is counted on a frequent basis rather than once or twice a year.
T
Fixed-order-quantity inventory models are "event triggered."
T
Fixed-order-quantity inventory systems determine the reorder point, R, and the order quantity, Q, values.
T
Fixed-time-period inventory models are "time triggered."
T
Fixed-time-period inventory models generate order quantities that vary from time period to time period, depending on the usage rate
T
If the cost to change from producing one product to producing another were zero, the lot size would be very small.
T
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.
T
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.
T
In inventory models, high holding costs tend to favor low inventory levels and frequent replenishment.
T
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.
T
Inventory is defined as the stock of any item or resource used in an organization.
T
One of the basic purposes of inventory analysis in manufacturing and stock keeping services is to determine how large the orders to vendors should be.
T
One of the basic purposes of inventory analysis in manufacturing and stock keeping services is to specify when items should be ordered
T
One of the daily, delicate balancing acts that logistics managers have to perform involves the trade-off between customer satisfaction and cost to serve.
T
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.
T
One of the daily, delicate balancing acts that logistics managers have to perform involves the trade-off between transportation costs and fulfillment speed.
T
One of the drivers of the direct-to-store (direct distribution) approach is the increase in global sourcing.
T
One of the drivers of the direct-to-store (direct distribution) approach is the upstream migration of value-added logistics services.
T
Price-break models deal with discrete or step changes in price as order size changes rather than a per-unit change.
T
Price-break models deal with the fact that the selling price of an item varies with the order size.
T
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.
T
Safety stock can be defined as the amount of inventory carried in addition to the expected demand.
T
Savings from reduced inventory results in increased profit.
T
Some inventory situations involve placing orders to cover only one demand period or to cover short-lived items at frequent intervals
T
The "sawtooth effect" is named after the jagged shape of the graph of inventory levels over time.
T
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 backordered inventory.
T
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 stock out.
T
The fixed-order-quantity inventory model requires more time to maintain because every addition or withdrawal is logged
T
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.
T
Using the probability approach, we assume that the demand over a period of time is normally distributed.
T
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.
T
You should visualize inventory as stacks of money sitting on forklifts, on shelves, and in trucks and planes while in transit.
T
