Deck 10: Inventory Models

Question 1

To be considered as inventory, goods must be finished and waiting for delivery.

Answer 1

False

Question 2

The definition of service level used in this chapter is

A)the percentage of all demand that can be satisfied from inventory.
B)the percentage of all order cycles that do not experience a stockout.
C)the percentage of demand during the lead-time period that can be satisfied from inventory
D)None of the alternatives is correct.

Answer 2

B

Question 3

The objective of the EOQ with quantity discounts model is to

A)determine the minimum order quantity required for the maximum discount.
B)balance annual ordering and holding costs.
C)minimize annual purchase cost.
D)minimize the sum of annual carrying, holding, and purchase costs.

Answer 3

D

Question 4

For the inventory model with planned shortages, the optimal order quantity results in

A)annual holding cost = annual ordering cost.
B)annual holding cost = annual backordering cost.
C)annual ordering cost = annual holding cost + annual backordering cost.
D)annual ordering cost = annual holding cost - annual backordering cost.

Question 5

Periodic review inventory systems

A)are less subject to stockouts than corresponding continuous review systems.
B)require larger safety stock levels than corresponding continuous review systems.
C)have constant order quantities.
D)make the coordination of orders for multiple products more difficult.

Question 6

Inventory position is defined as

A)the amount of inventory on hand in excess of expected demand.
B)the amount of inventory on hand.
C)the amount of inventory on hand plus the amount of inventory on order.
D)None of the alternatives is correct.

Question 7

The economic production lot size model is appropriate when

A)demand exceeds the production rate.
B)there is a constant supply rate for every period, without pause.
C)ordering cost is equivalent to the production setup cost.
D)All of the alternatives are correct.

Question 8

Inventory models in which the rate of demand is constant are called

A)fixed models.
B)deterministic models.
C)JIT models.
D)requirements models.

Question 9

Safety stock

A)can be determined by the EOQ formula.
B)depends on the inventory position.
C)depends on the variability of demand during lead time.
D)is not needed if Q* is the actual order quantity.

Question 10

Inventory

A)is held against uncertain usage so that a supply of items is available if needed.
B)constitutes a small part of the cost of doing business.
C)is not something that can be managed effectively.
D)All of the alternatives are correct.

Question 11

For inventory systems with constant demand and a fixed lead time,

A)the reorder point = lead-time demand.
B)the reorder point > lead-time demand.
C)the reorder point < lead-time demand.
D)the reorder point is unrelated to lead-time demand.

Question 12

Which of the following is not implied when average inventory is Q/2, where Q is the order quantity?

A)An entire order quantity arrives at one time.
B)The previous order quantity is entirely depleted when the next order arrives.
C)An order quantity is depleted at a uniform rate over time.
D)Backorders are permitted.

Question 13

When demand is independent, it is not related to demand for other components or items produced by the firm.

Question 14

The maximum inventory with backorders is

A)Q
B)Q - S
C)S
D)(Q - S) / 2

Question 15

For the EOQ model, which of the following relationships is incorrect?

A)As the order quantity increases, the number of orders placed annually decreases.
B)As the order quantity increases, annual holding cost increases.
C)As the order quantity increases, annual ordering cost increases.
D)As the order quantity increases, average inventory increases.

Question 16

The EOQ model

A)determines only how frequently to order.
B)considers total cost.
C)minimizes both ordering and holding costs.
D)All of the alternatives are correct.

Question 17

In the single-period inventory model with probabilistic demand,

A)surplus items are not allowed to be carried in future inventory.
B)c_o = c?_u .
C)probabilities are used to calculate expected losses.
D)All of the alternatives are correct.

Question 18

A firm that is presently using the Economic Order Quantity model and is planning to switch to the Economic Production Lot-Size model can expect

A)the Q* to increase
B)the maximum inventory level to increase.
C)the order cycle to decrease.
D)annual holding cost to be less than annual setup cost.

Question 19

Which cost would not be considered part of a holding cost?

A)cost of capital
B)shipping cost
C)insurance cost
D)warehouse overhead

Question 20

Annual purchase cost is included in the total cost in

A)the EOQ model.
B)the economic production lot size model.
C)the quantity discount model.
D)all inventory models.

Question 21

In the EOQ model, the average inventory per cycle over many cycles is Q/2.

Question 22

When quantity discounts are available, order an amount from the highest discount category.

Question 23

In the periodic review model, the order quantity at each review period must be sufficient to cover demand for the review period plus the demand for the following lead time.

Question 24

Constant demand is a key assumption of the EOQ model.

Question 25

When there is probabilistic demand in a multi-period model, the inventory level will not decrease smoothly and can fall below 0.

Question 26

The EOQ model is insensitive to small variations or errors in the cost estimates.

Question 27

The time between placing orders is the lead time.

Question 28

The terms "inventory on hand" and "inventory position" have the same meaning.

Question 29

The cost of overestimating demand is usually harder to determine than the cost of underestimating demand.

Question 30

If an item's per-unit backorder cost is greater than its per-unit holding cost, no intentional shortage should be planned.

Question 31

The single-period inventory model is most applicable to items that are perishable or have seasonal demand.

Question 32

Periodic review systems require smaller safety stock levels than corresponding continuous review systems.

Question 33

If the optimal production lot size decreases, average inventory increases.