Deck 9: Inventory Fundamentals

Question 1

Which of the following statements is NOT true?

A) the annual cost of ordering depends on the number of orders per year
B) the annual cost of ordering can be reduced by ordering less at any one time
C) the annual cost of carrying inventory can be decreased by ordering less at one time
D) all the above are true
E) none of the above is true

Answer 1

B

Question 2

Transportation inventories can be reduced by:

A) reducing transportation time
B) reducing order quantities
C) increasing order quantities
D) reducing the order point
E) none of the above

Answer 2

A

Question 3

Which of the following statements is best about inventory management?

A) inventories and production can be managed separately
B) inventory is not important at the production planning level
C) inventories are usually insignificant on the balance sheet
D) all the above are true
E) none of the above is true

Answer 3

E

Question 4

Which of the following costs are relevant to inventory management decisions?

A) carrying costs
B) ordering costs
C) capacity-related costs
D) all the above
E) none of the above

Question 5

In managing inventory, the problem is to balance the inventory investment with: I. Customer service.
II) Costs associated with changing production levels.
III) Costs of placing orders.
IV) Transportation costs.

A) II and III only
B) III and IV
C) I, II and III only
D) II, III and IV only
E) I, II, III, and IV

Question 6

Items that are purchased or manufactured in quantities greater than needed immediately create
Inventories:

A) anticipation
B) lot size
C) hedge
D) any of the above
E) none of the above

Question 7

are materials that have entered the production process and are materials that are used in the production process but do not become part of the product.
I) Raw materials
II) Work in process
III) Finished goods
IV) Maintenance, repair and operational supplies

A) I and II
B) II and III
C) III and IV
D) I and III
E) II and IV

Question 8

Which of the following is NOT a cost of carrying inventory?

A) capital costs
B) storage costs
C) purchase cost
D) all the above
E) none of the above

Question 9

Which of the following statements is most accurate?

A) about 20% of the items will usually account for about 80% of the total value
B) 'A' class items should have the tightest possible control
C) the general rule using the ABC approach is to have plenty of everything in stock
D) a and b only are true
E) none of the above is true

Question 10

Which of the following company objectives are in conflict?
I) Maximize customer service.
II) Low-cost plant operation.
III) Minimum inventory investment.

A) I, II and III
B) I and II, not III
C) I and III, not II
D) II and III, not I
E) none

Question 11

Which of the following would NOT be included in calculating inventory carrying costs?

A) capital costs
B) ordering costs
C) obsolescence costs
D) all the above
E) none of the above

Question 12

Inventories that are built up in advance of a peak selling season, a promotion program or a plant shut-down are known as:

A) lot-size inventories
B) transportation inventories
C) safety stocks
D) anticipation inventories
E) none of the above

Question 13

Which of the following statements is best?

A) two items with the same part number but in two different inventories would be one stock keeping unit (SKU)
B) two white shirts of different sizes in the same inventory would be one SKU
C) two items with the same part number in the same inventory would be one SKU
D) all the above are true
E) none of the above is true

Question 14

Which of the following costs would NOT be included in the cost of placing an order?

A) setup costs
B) costs of placing a purchase order
C) back-order costs
D) all the above
E) none of the above

Question 15

If the annual cost of goods sold is $10,000,000 and the average inventory is $2,000,000, what is the turns ratio?

A) $8,000,000
B) 5
C) 0.2
D) 20%
E) cannot be calculated from the information given

Question 16

Select the one best of the following statements:

A) inventories allow manufacturing to level out production and to satisfy peak demand
B) inventories allow manufacturing to reduce production runs, reducing unit cost
C) inventories allow manufacturers to operate different work centers at the same output
D) all the above are true
E) none of the above is true

Question 17

Of the following statements:
I) 'A' items usually account for about 70%−80% of the total usage value.
II) About 50% of the items usually account for 50% of the value.
III) 'C' items should be given the top priority in inventory management.

A) I and II are true
B) II and III are true
C) I and III are true
D) only III is true
E) only I is true

Question 18

Which of the following are considered ordering costs?
I) Production control costs.
II) Lost capacity costs.
III) Risk costs.

A) I, II and III
B) I and II
C) I and III
D) II and III
E) none of the above

Question 19

If there are 20 working days in a month, the monthly usage is 660 units, and there are 100 units on
Hand, approximately how many days' supply are there?

A) 3
B) 5
C) 7
D) 33

Question 20

Which of the following equations is correct?

A) Assets = liabilities + revenue
B) Profit = revenue + owners equity
C) Liabilities = assets - owners equity
D) Revenue = accounts receivable - liabilities

Question 21

Delivery of goods from a supplier is in transit for 14 days. If the annual demand is 2600 units, what is the average annual inventory in transit?

A) 89.7 units
B) 100 units
C) 1.97 units
D) cannot be determined from the data given

Question 22

Which of the following represents a major method to establish a forecast for the need for MRO
Supplies?

A) Base the forecast on the lot sizes of production material
B) Base the forecast on the mean time between failures
C) Base the forecast on the exponential smoothing approach
D) Base the forecast on extrinsic methods

Question 23

A company carries an average annual inventory of $1,000,000. If the cost of capital is 10%, storage costs are 8%, and risk costs are 7%, what does it cost per year to carry this inventory?

A) $100,000
B) $80,000
C) $70,000
D) $250,000
E) cannot be determined from the data given

Question 24

Which of the following are reasons for keeping inventory?
I) To allow for goods in transit.
II) To build up stock for seasonal demand.
III) To reduce production costs.
IV) To guard against uncertainty in supply and demand.

A) I, II and III only
B) II, III and IV only
C) II and IV only
D) all the above are valid reasons

Question 25

All of the following are reasons to keep inventory EXCEPT:

A) Allow flexibility in production scheduling
B) Couple supply with demand
C) Meet fluctuations in product demand
D) Provide a safeguard against delivery time variations

Question 26

Which of the following would not be considered work-in-process inventory?
I) Finished goods in the stockroom.
II) Processed material waiting for inspection.
III) Raw materials not issued.
IV) Components in queue ahead of a milling machine.

A) I and II
B) I and III
C) I and IV
D) II and III

Question 27

Given the following information, calculate the inventory turns.
Sales = $200,000,000
Cost of sales = $160,000,000
Average inventory = $ 40,000,000
Carrying cost = 12%

A) 0.20
B) 0.25
C) 4.0
D) 5.0