Question 1

Which of the following statements about quantity discounts is FALSE?

Accepted Answer

A) The cost-minimizing solution may or may not be where annual holding costs equal annual ordering costs. 
B) In inventory management,item cost becomes relevant to order quantity decisions when a quantity discount is available. 
C) If carrying costs are expressed as a percentage of value,EOQ is larger at each lower price in the discount schedule. 
D) The larger the annual demand,the less attractive a discount schedule will be. 
E) The smaller the ordering cost,the less attractive a discount schedule will be. 
A) The cost-minimizing solution may or may not be where annual holding costs equal annual ordering costs. 
B) In inventory management,item cost becomes relevant to order quantity decisions when a quantity discount is available. 
C) If carrying costs are expressed as a percentage of value,EOQ is larger at each lower price in the discount schedule. 
D) The larger the annual demand,the less attractive a discount schedule will be. 
E) The smaller the ordering cost,the less attractive a discount schedule will be.

Question 2

Among the advantages of cycle counting is that it:

Accepted Answer

A) makes the annual physical inventory more acceptable to management. 
B) does not require the detailed records necessary when annual physical inventory is used. 
C) does not require highly trained people. 
D) allows more rapid identification of errors and consequent remedial action than is possible with annual physical inventory. 
E) does not need to be performed for less expensive items. 
A) makes the annual physical inventory more acceptable to management. 
B) does not require the detailed records necessary when annual physical inventory is used. 
C) does not require highly trained people. 
D) allows more rapid identification of errors and consequent remedial action than is possible with annual physical inventory. 
E) does not need to be performed for less expensive items.

Question 3

Which of these statements about the production order quantity model is FALSE?

Accepted Answer

A) The production order quantity model is appropriate when the assumptions of the basic EOQ model are met,except that receipt is noninstantaneous. 
B) Because receipt is noninstantaneous,some units are used immediately and not stored in inventory. 
C) Average inventory is less than one-half of the production order quantity. 
D) All else equal,the smaller the ratio of demand rate to production rate,the larger is the production order quantity. 
E) None of the above is false. 
A) The production order quantity model is appropriate when the assumptions of the basic EOQ model are met,except that receipt is noninstantaneous. 
B) Because receipt is noninstantaneous,some units are used immediately and not stored in inventory. 
C) Average inventory is less than one-half of the production order quantity. 
D) All else equal,the smaller the ratio of demand rate to production rate,the larger is the production order quantity. 
E) None of the above is false.

Question 4

The soft goods department of a large department store sells 175 units per month of a certain large bath towel.The unit cost of a towel to the store is $2.50 and the cost of placing an order has been estimated to be $12.00.The store uses an inventory carrying charge of I = 27% per year.Determine (a)the optimal order quantity, (b)the order frequency,and (c)the annual holding and setup cost.If,through automation of the purchasing process,the ordering cost can be cut to $4.00,what will be (d)the new economic order quantity, (e)the order frequency,and (f)annual holding and setup costs? Explain these results.

Accepted Answer

Annual demand is 175 × 12 = 2100.
(a)Q*

Question 5

The proper quantity of safety stock is typically determined by:

Accepted Answer

A) using a single-period model. 
B) carrying sufficient safety stock so as to eliminate all stockouts. 
C) multiplying the EOQ by the desired service level. 
D) setting the level of safety stock so that a given stockout risk is not exceeded. 
E) minimizing total costs. 
A) using a single-period model. 
B) carrying sufficient safety stock so as to eliminate all stockouts. 
C) multiplying the EOQ by the desired service level. 
D) setting the level of safety stock so that a given stockout risk is not exceeded. 
E) minimizing total costs.

Question 6

In the quantity discount model,the cost of acquiring goods (product cost)is not a factor in determining lot size.

Accepted Answer

A) True 
 B)False

Question 7

Safety stock in inventory systems depends only on the average demand during the lead time.

Accepted Answer

A) True 
 B)False

Question 8

Your company has compiled the following data on the small set of products that comprise the specialty repair parts division.Perform ABC analysis on the data.Which products do you suggest the firm keep the tightest control over? Explain.

Accepted Answer

R11 and U44 represent over 80% of the fi

Question 9

A disadvantage of the fixed-period inventory system is that:

Accepted Answer

A) it involves higher ordering costs than the fixed quantity inventory system. 
B) additional inventory records are required. 
C) the average inventory level is decreased. 
D) since there is no count of inventory during the review period,a stockout is possible. 
E) orders usually are for larger quantities. 
A) it involves higher ordering costs than the fixed quantity inventory system. 
B) additional inventory records are required. 
C) the average inventory level is decreased. 
D) since there is no count of inventory during the review period,a stockout is possible. 
E) orders usually are for larger quantities.

Question 10

An organization has had a policy of ordering 70 units at a time.Their annual demand is 340 units,and the item has an annual carrying cost of $2.The assumptions of the EOQ are thought to apply.For what value of ordering cost would this order size be optimal?

Accepted Answer

Start with the econo

Question 11

A(n)________ model gives satisfactory answers even with substantial variations in its parameters.

Accepted Answer

The answer of A(n)________ model gives satisfactory answers even with...

Question 12

Groundz Coffee Shop uses 4 pounds of a specialty tea weekly;each pound costs $16.Carrying costs are $1 per pound per week because space is very scarce.It costs the firm $8 to prepare an order.Assume the basic EOQ model with no shortages applies.Assume 52 weeks per year,closed on Mondays.
a.How many pounds should Groundz order at a time?
b.What is total annual cost (excluding item cost)of managing this item on a cost-minimizing basis?
c.In pursuing lowest annual total cost,how many orders should Groundz place annually?
d.How many days will there be between orders (assume 312 operating days)if Groundz practices EOQ behavior?

Accepted Answer

a.Q* = @#IMG-DLM& = 8.Groundz should order 8 pound

Question 13

Compare the assumptions of the production order quantity model to those of the basic EOQ model.

Accepted Answer

All are the same,except for th

Question 14

Consider a local club selling Christmas trees.If trees cost $15 and sell for $60 with no salvage value,what is the ideal service level? If salvage value is increased to $5,what is the change in service level?

Accepted Answer

Original service level = Cs/(C

Question 15

________ inventory is material that is usually purchased,but has yet to enter the manufacturing process.

Accepted Answer

The answer of ________ inventory is material that is usually...

Question 16

The annual demand for an item is 10,000 units.The cost to process an order is $75 and the annual inventory holding cost is 20% of item cost.(a)What is the optimal order quantity,given the following price breaks for purchasing the item? (b)What price should the firm pay per unit? (c)What is the total annual cost at the optimal behavior?

Accepted Answer

Range 1 and Range 2 are irrelevant,becau

Question 17

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?

Accepted Answer

A) One hundred is the reorder point,and 14 is the order quantity. 
B) Fourteen is the reorder point,and 100 is the order quantity. 
C) The number 100 is a function of demand during lead time. 
D) Fourteen is the safety stock,and 100 is the reorder point. 
E) None of the above is true. 
A) One hundred is the reorder point,and 14 is the order quantity. 
B) Fourteen is the reorder point,and 100 is the order quantity. 
C) The number 100 is a function of demand during lead time. 
D) Fourteen is the safety stock,and 100 is the reorder point. 
E) None of the above is true.

Question 18

In the basic EOQ model,if D = 6000 per year,S = $100,and holding cost = $5 per unit per month,what is the economic order quantity?

Accepted Answer

A) 24 
B) 100 
C) 141 
D) 490 
E) 600 
A) 24 
B) 100 
C) 141 
D) 490 
E) 600

Question 19

A local club is selling Christmas trees and deciding how many to stock for the month of December.If demand is normally distributed with a mean of 100 and standard deviation of 20,trees have no salvage value at the end of the month,trees cost $20,and trees sell for $50 what is the service level?

Accepted Answer

A) .60 
B) .20 
C) .84 
D) .40 
E) unable to determine given the above information 
A) .60 
B) .20 
C) .84 
D) .40 
E) unable to determine given the above information

Question 20

ABC analysis classifies inventoried items into three groups,usually based on annual units or quantities used.

Accepted Answer

A) True 
 B)False

Exam 12: Managing Inventory

Which of the following statements about quantity discounts is FALSE?

Among the advantages of cycle counting is that it:

Which of these statements about the production order quantity model is FALSE?

The proper quantity of safety stock is typically determined by:

In the quantity discount model,the cost of acquiring goods (product cost)is not a factor in determining lot size.

Safety stock in inventory systems depends only on the average demand during the lead time.

Your company has compiled the following data on the small set of products that comprise the specialty repair parts division.Perform ABC analysis on the data.Which products do you suggest the firm keep the tightest control over? Explain.

A disadvantage of the fixed-period inventory system is that:

An organization has had a policy of ordering 70 units at a time.Their annual demand is 340 units,and the item has an annual carrying cost of $2.The assumptions of the EOQ are thought to apply.For what value of ordering cost would this order size be optimal?

A(n)________ model gives satisfactory answers even with substantial variations in its parameters.

Compare the assumptions of the production order quantity model to those of the basic EOQ model.

Consider a local club selling Christmas trees.If trees cost $15 and sell for $60 with no salvage value,what is the ideal service level? If salvage value is increased to $5,what is the change in service level?

________ inventory is material that is usually purchased,but has yet to enter the manufacturing process.

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?

In the basic EOQ model,if D = 6000 per year,S = $100,and holding cost = $5 per unit per month,what is the economic order quantity?

A local club is selling Christmas trees and deciding how many to stock for the month of December.If demand is normally distributed with a mean of 100 and standard deviation of 20,trees have no salvage value at the end of the month,trees cost $20,and trees sell for $50 what is the service level?

ABC analysis classifies inventoried items into three groups,usually based on annual units or quantities used.

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