Question 1

In the fixed-period system, managers must make two key decisions: the time interval between reviews and the replenishment level.

Accepted Answer

A) True 
 B)False

Question 2

Zainab opens an aquarium store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. She collects the following data with respect to this pump's sales:
$\begin{array} { l l } 
\text { Demand } = 5 \text { units per week } & \text { Store operates } 50 \text { weeks } / \text { year } \
\text { Order cost } = \$ 40 / \text { order } & \text { Lead time } = 3 \text { weeks } \
\text { Item cost } = \$ 80 / \text { pump } & \
\text { Inventory-holding cost } = 15 \% \text { per year } &
\end{array}$
-If the current order quantity used by Zainab is 20 pumps per order, how much money can she save by adopting an economic order quantity (EOQ) policy?

Accepted Answer

A)  Less than $50 
B)  More than $50 but less than or equal to $75 
C)  More than $75 but less than or equal to $120 
D)  More than $120 
A)  Less than $50 
B)  More than $50 but less than or equal to $75 
C)  More than $75 but less than or equal to $120 
D)  More than $120

Question 3

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?

Accepted Answer

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). 
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).

Question 4

Finished-goods inventory consists of completed products that are ready for sale.

Accepted Answer

A) True 
 B)False

Question 5

The economic order quantity (EOQ) model follows variable lead time.

Accepted Answer

A) True 
 B)False

Question 6

Brenda opens a pool and spa store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The 28-ounce bottle of Super Algaecide (SA) is a high margin stock keeping unit (SKU), but it stocks out frequently. Ten SA bottles come in each box, and she orders boxes from a vendor 160 miles away. Brenda is busy running the store and seldom has time to review store inventory status and order the right quantity at the right time. She collects the following data with respect to these SA sales.
$\begin{array} { l l } 
\text { Demand } = 10 \text { boxes per week } & \text { Store operates } 50 \text { weeks } / \text { year } \
\text { Order cost } = \$ 40 / \text { order } & \text { Lead time } = 3 \text { weeks } \
\text { Item cost } = \$ 80 / \text { box } & \text { Std. deviation in weekly demand } = 6 \
\text { Inventory-holding cost } = 15 \% \text { per year } & \text { Service level } = 96 \%
\end{array}$
-The Economic Order Quantity (EOQ) rounded to the next highest number is:

Accepted Answer

A)  less than 25 boxes. 
B)  more than 25 but less than or equal to 35 boxes. 
C)  more than 35 but less than or equal to 45 boxes. 
D)  more than 55 boxes. 
A)  less than 25 boxes. 
B)  more than 25 but less than or equal to 35 boxes. 
C)  more than 35 but less than or equal to 45 boxes. 
D)  more than 55 boxes.

Question 7

An auto parts store (operates 350 days per year) in a major metropolitan area reviews its inventory on a periodic basis using a computer system. It is experiencing some problems with a tune-up kit. The kit is bought from PRC Tires, a U.S. manufacturer. The annual demand for these kits is 10,500. The cost to carry a kit in the inventory for one year is $4.90, and the cost to place a replenishment order is $17 per order. Replenishment lead time is 4 days. The standard deviation of daily demand is 7 kits.
a.What should be the review period for these tune-up kits?
b.What is the optimal replenishment level without safety stock?
c.What is the optimal replenishment level with safety stock, assuming a 95 percent service level?

Accepted Answer

a.EOQ = Q* = Sq. root of [2(10,500)(17)/

Question 8

Demand that varies over time is called _____ demand.

Accepted Answer

A)  static 
B)  dynamic 
C)  statistical 
D)  average 
A)  static 
B)  dynamic 
C)  statistical 
D)  average

Question 9

A _____ is defined as the inability to satisfy the demand for an item.

Accepted Answer

A)  Reorder point 
B)  Stockout 
C)  Lost sale 
D)  Backorder 
A)  Reorder point 
B)  Stockout 
C)  Lost sale 
D)  Backorder

Question 10

Inventory management does not involve supplies and replacement parts.

Accepted Answer

A) True 
 B)False

Question 11

Table 1
Peterson Enterprises uses a fixed order quantity inventory control system. The firm operates 50 weeks per year and has the following characteristics for an item:
Demand $= 50,000$ units/year
Ordering cost $= \$ 35 /$ order
Inventory-carrying cost as a percent of item value $= 25 \%$
Item (Unit) value $= \$ 8$
Lead time $= 3$ weeks
Standard deviation in weekly demand $= 125$ units
-Using the information in Table 1, if Peterson wishes to provide a 97 percent cycle service level, what is the reorder point?

Accepted Answer

A)  Less than or equal to 2,800 units 
B)  Greater than 2,800 but less than or equal to 3,200 units 
C)  Greater than 3,200 but less than or equal to 3,600 units 
D)  Greater than 3,600 units 
A)  Less than or equal to 2,800 units 
B)  Greater than 2,800 but less than or equal to 3,200 units 
C)  Greater than 3,200 but less than or equal to 3,600 units 
D)  Greater than 3,600 units

Question 12

A stock-keeping unit is the same no matter at which location the item is found.

Accepted Answer

A) True 
 B)False

Question 13

A 4th of July celebration T-shirt for this year will cost festival organizers $12 each and will sell for $25 on or before July 4. Any unsold T-shirts can usually be disposed at a discount after the festival for $5 each. If demand is normally distributed with a mean of 1,800 T-shirts and a standard deviation of 75, how many T-shirts should be ordered?

Accepted Answer

c_u = 25 - 12 = 13 c

Question 14

Which of the following statements concerning the economic order quantity (EOQ) model is NOT TRUE when the unit holding cost increases?

Accepted Answer

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. 
B)  The number of orders per year will increase. 
C)  Annual ordering costs will increase. 
D)  Sunk costs will decrease.

Question 15

Call center phone lines are examples of inventory in service organizations.

Accepted Answer

A) True 
 B)False

Question 16

Peterson Enterprises uses a fixed-order quantity inventory control system. The firm operates 50 weeks per year and has the following characteristics for an item:
Demand = 50,000 units/year
Ordering cost = $35/order
Holding cost = $2/unit/year
Lead time = 3 weeks
Standard deviation in weekly demand = 125 units
a.What is the economic order quantity (EOQ) for this item?
b.If Peterson wishes to provide a 90 percent cycle service level, what is the reorder point with safety stock?

Accepted Answer

a.Q* = Sq. root of [2(50,000)(35)/2] = 1

Question 17

Bishop Manufacturing is implementing the economic order quantity (EOQ) inventory control system, and they need a good estimate of the cost to process a purchase order (PO). It takes 5 total labor hours to process a PO. The average number of stock-keeping units (SKUs) on a PO is 2.2. The average wage for people working in the purchasing department is $22 per hour, plus employee benefits of $3 per hour. Fixed costs for the purchasing department are $250,000 per year assuming a 2,000 hour per employee per year workweek. Given this information a good estimate of the cost to order one SKU is _____.

Accepted Answer

A)  $5.00 
B)  $56.82 
C)  $113.36 
D)  $125.00 
A)  $5.00 
B)  $56.82 
C)  $113.36 
D)  $125.00

Question 18

Setup costs depend on the number of items manufactured.

Accepted Answer

A) True 
 B)False

Question 19

Christa, a merchant wants to stock Christmas trees. She can place only one order per season, so she pays $30 for each tree that she buys and sells them for $80 each. She will incur an additional cost of $6 each for unsold trees that must be hauled to the landfill. If the demand for Christmas trees is normally distributed with a mean of 365 trees and a standard deviation of 46 trees, how many trees should she order?

Accepted Answer

c_u = 80 - 30 = 50 c

Question 20

Graeme manages a candy store in a high traffic shopping mall where he has collected the following information:
Weekly demand for small candy boxes = 90 boxes
Cost to place one purchase order with the box supplier = $19.80
Cost to hold one box for one year in inventory = $2.45
ead time = 2 weeks
Weeks in a year = 52 weeks
-The economic order quantity (EOQ) is:

Accepted Answer

A)  less than 100 boxes. 
B)  more than 100 but less than or equal to 150 boxes. 
C)  more than 150 but less than or equal to 200 boxes. 
D)  more than 200 boxes. 
A)  less than 100 boxes. 
B)  more than 100 but less than or equal to 150 boxes. 
C)  more than 150 but less than or equal to 200 boxes. 
D)  more than 200 boxes.

In the fixed-period system, managers must make two key decisions: the time interval between reviews and the replenishment level.

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?

Finished-goods inventory consists of completed products that are ready for sale.

The economic order quantity (EOQ) model follows variable lead time.

Demand that varies over time is called _____ demand.

A _____ is defined as the inability to satisfy the demand for an item.

Inventory management does not involve supplies and replacement parts.

A stock-keeping unit is the same no matter at which location the item is found.

Which of the following statements concerning the economic order quantity (EOQ) model is NOT TRUE when the unit holding cost increases?

Call center phone lines are examples of inventory in service organizations.

Setup costs depend on the number of items manufactured.

Goods, Services, and Operations Management

Value Chains

Measuring Performance in Operations

Operations Strategy

Technology and Operations Management

Goods and Service Design

Process Selection, Design, and Analysis

Facility and Work Designs

Supply Chain Design

Capacity Management

Forecasting and Demand Planning

Resource Management

Operations Scheduling and Sequencing

Quality Management

Appendix: Quality Management

Quality Control and Spc

Appendix: Queuing Analysis

Appendix: Modeling Using Linear Programming

Lean Operating Systems

Appendix: Simulation

Project Management

Appendix: Decision Analysis

Filters

Exam 12: Managing Inventories

In the fixed-period system, managers must make two key decisions: the time interval between reviews and the replenishment level.

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?

Finished-goods inventory consists of completed products that are ready for sale.

The economic order quantity (EOQ) model follows variable lead time.

Demand that varies over time is called _____ demand.

A _____ is defined as the inability to satisfy the demand for an item.

Inventory management does not involve supplies and replacement parts.

A stock-keeping unit is the same no matter at which location the item is found.

Which of the following statements concerning the economic order quantity (EOQ) model is NOT TRUE when the unit holding cost increases?

Call center phone lines are examples of inventory in service organizations.

Setup costs depend on the number of items manufactured.

Goods, Services, and Operations Management

Value Chains

Measuring Performance in Operations

Operations Strategy

Technology and Operations Management

Goods and Service Design

Process Selection, Design, and Analysis

Facility and Work Designs

Supply Chain Design

Capacity Management

Forecasting and Demand Planning

Resource Management

Operations Scheduling and Sequencing

Quality Management

Appendix: Quality Management

Quality Control and Spc

Appendix: Queuing Analysis

Appendix: Modeling Using Linear Programming

Lean Operating Systems

Appendix: Simulation

Project Management

Appendix: Decision Analysis

Filters