Question 1

What are the four categories of inventory costs?

Accepted Answer

1.Ordering costs or setup costs are incu

Question 2

Explain the difference between a fixed quantity system and a fixed period system.

Accepted Answer

In a fixed quantity system (FQS), the or

Question 3

Backorders ____.

Accepted Answer

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 
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

Question 4

Using ABC analysis, continuous monitoring and accurate record keeping relates best to ____ items.

Accepted Answer

A) A 
B) B 
C) C 
D) B and C 
A) A 
B) B 
C) C 
D) B and C

Question 5

Which of the following is not a component of holding cost?

Accepted Answer

A) Taxes 
B) Insurance 
C) Material handling 
D) Order processing 
A) Taxes 
B) Insurance 
C) Material handling 
D) Order processing

Question 6

Two fundamental inventory decisions are when to order and how much to order. Which of the following statement is true with respect to Fixed Quantity( FQS) and Fixed Period (FPS) inventory systems?

Accepted Answer

A) A FPS orders a fixed period quantity when the inventory position reaches or drops below the reorder point( r). 
B) A FPS must cover a time period of T + L to cover the risk of a stock out. 
C) A FPS places an order for the economic order quantity every T time units. 
D) A 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) A FPS orders a fixed period quantity when the inventory position reaches or drops below the reorder point( r). 
B) A FPS must cover a time period of T + L to cover the risk of a stock out. 
C) A FPS places an order for the economic order quantity every T time units. 
D) A 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 7

Work in process inventory is completed products ready for distribution or sale to customers.

Accepted Answer

A) True 
 B)False

Question 8

An example of stochastic demand might be: "The daily demand for milk is normally distributed with a mean of 150 gallons and a standard deviation of 15 gallons."

Accepted Answer

A) True 
 B)False

Question 9

In general, total ordering costs are equal to total inventory holding cost for the optimal solution to the EOQ model.

Accepted Answer

A) True 
 B)False

Question 10

In a fixed quantity inventory system with certain demand, the reorder point is chosen to be the average demand during the lead time.

Accepted Answer

A) True 
 B)False

Question 11

Using a fixed quantity system( FQS), as the reorder point increases

Accepted Answer

A) safety stock increases 
B) safety stock decreases 
C) the number of orders increases 
D) the number of orders decreases 
A) safety stock increases 
B) safety stock decreases 
C) the number of orders increases 
D) the number of orders decreases

Question 12

Demand that varies over time is called ____.

Accepted Answer

A) Static 
B) Dynamic 
C) Stochastic 
D) Deterministic 
A) Static 
B) Dynamic 
C) Stochastic 
D) Deterministic

Question 13

RFID tags are often used to track stock keeping units in supply chains.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is incorrect regarding inventory management?

Accepted Answer

A) The two fundamental inventory decisions are when 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) SKUs are often aggregated or partitioned into groups with similar characteristics or dollar value 
A) The two fundamental inventory decisions are when 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) SKUs are often aggregated or partitioned into groups with similar characteristics or dollar value

Question 15

Average inventory in the EOQ model is defined as

Accepted Answer

A) The order quantity divided by the number of inventory cycles per year 
B) Annual usage divided by the number of inventory cycles per year 
C) One-half the order quantity 
D) One-half the annual usage 
A) The order quantity divided by the number of inventory cycles per year 
B) Annual usage divided by the number of inventory cycles per year 
C) One-half the order quantity 
D) One-half the annual usage

Question 16

The recently hired floor manager at the local store of a national home improvement chain is studying their inventory system. He has chosen patio blocks to be the first item examined. The historical supply and demand data for this item has indicated a constant lead time of 16 days. Demand per day d) is normally distributed with a mean demand of 2000 per day and standard deviation of 240 per day. He plans to set the service level at 90% during lead time.
a. What is the average demand during lead time?
b. What is the amount of safety stock of blocks he should keep on hand?
c. What is the order point he should use?

Accepted Answer

a.@#LAT-DLM&_L = @#LAT-DLM&_tT = 2000(16

Question 17

Setup costs depend on the number of items manufactured.

Accepted Answer

A) True 
 B)False

Question 18

In ABC inventory analysis, which of the following is true for "C" items?

Accepted Answer

A) Tighter control of ("C" items than for "A" or "B" items) is appropriate. 
B) "C" items are critical items that must be monitored with a fixed period system. 
C) "C" items make up a lower percentage of total inventory value $) than either "A" or "B" items. 
D) "C" items make up 10-20 percent of inventory items. 
A) Tighter control of ("C" items than for "A" or "B" items) is appropriate. 
B) "C" items are critical items that must be monitored with a fixed period system. 
C) "C" items make up a lower percentage of total inventory value $) than either "A" or "B" items. 
D) "C" items make up 10-20 percent of inventory items.

Question 19

You manage a candy store in a high traffic shopping mall where you have collected the following information.

Accepted Answer

Answer the next four questions based on

Question 20

Alice 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. You collect the following date with respect to this pump's sales.
 $$\begin{array} { l l } 
\text { Demand } = 5 \text { units per week } & \text { Store open 50 weeks/year } \
\text { Order cost } = \$ 40 / \text { /order } & \text { Lead-time } = 3 \text { weeks } \
\text { Item cost } = \$ 80 / p u m p & \
\text { Inventory holding cost } = 15 \% \text { per year } &
\end{array}$$ 
a. What is the Economic Order Quantity EOQ) rounded to the next highest number?
b. If the current order quantity used by Alice is 20 pumps per order, how much money can she save annually by adopting an EOQ ordering policy?
c. If Alice decides to use a FPS, what is the economic fixed order interval?

Accepted Answer

a. Q* = Sq. root of [(2250)(40)/12] = 40

Exam 12: Managing Inventories

What are the four categories of inventory costs?

Explain the difference between a fixed quantity system and a fixed period system.

Backorders ____.

Using ABC analysis, continuous monitoring and accurate record keeping relates best to ____ items.

Which of the following is not a component of holding cost?

Two fundamental inventory decisions are when to order and how much to order. Which of the following statement is true with respect to Fixed Quantity( FQS) and Fixed Period (FPS) inventory systems?

Work in process inventory is completed products ready for distribution or sale to customers.

An example of stochastic demand might be: "The daily demand for milk is normally distributed with a mean of 150 gallons and a standard deviation of 15 gallons."

In general, total ordering costs are equal to total inventory holding cost for the optimal solution to the EOQ model.

In a fixed quantity inventory system with certain demand, the reorder point is chosen to be the average demand during the lead time.

Using a fixed quantity system( FQS), as the reorder point increases

Demand that varies over time is called ____.

RFID tags are often used to track stock keeping units in supply chains.

Which of the following is incorrect regarding inventory management?

Average inventory in the EOQ model is defined as

Setup costs depend on the number of items manufactured.

In ABC inventory analysis, which of the following is true for "C" items?

You manage a candy store in a high traffic shopping mall where you have collected the following information.

Goods, Services, and Operations Management

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Measuring Performance in Operations

Operations Strategy

Technology and Operations Management

Goods and Service Design

Process Selection, Design, and Analysis

Facility and Work Design

Supply Chain Design

Capacity Management

Forecasting and Demand Planning

Resource Management

Operations Scheduling and Sequencing

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Quality Control and Spc

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Work Measurement, Learning Curves, and Standards

Queuing Analysis

Modeling Using Linear Programming

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Work Measurement, Learning Curves, and Standards

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