Deck 7: Inventory Management

Question 1

The ABC inventory control system categorizes inventory items into three groups, A, B, and C.A items are given highest priority, while C items have the lowest priority.Prioritization may be based on annual dollar usage, shelf life, or sales volume.

Answer 1

True

Question 2

An RFID reader does not require direct line of sight to read the information stored in an RFID tag.

Answer 2

True

Question 3

The EOQ, also known as the economic order quantity, is the optimal order size in terms of cost because it minimizes the annual total inventory cost.The EOQ is the lot size where inventory holding costs equal annual ordering costs.

Answer 3

True

Question 4

Relaxing the instantaneous replenishment assumption of the EOQ model results in the Economic Manufacturing Quantity model.

Question 5

When demand and lead time are constant, reorder point is the demand during lead time.

Question 6

Radio Frequency Identification (RFID) is considered an eventual replacement of bar code because of its ability to store huge amount of information to differentiate specific unit of good.

Question 7

The optimal order quantity for the quantity discount model may exist at a price breakpoint.

Question 8

Service parts sold to the repair shops are examples of dependent demand.

Question 9

The continuous review inventory system is more expensive to monitor compared to the periodic review inventory system.

Question 10

The term Cycle Counting is synonymous with physically counting inventory.

Question 11

The four broad categories of inventory are raw materials, work-in-process, subassemblies, and finished goods.

Question 12

Pareto Analysis is an inventory model used to determine the optimal order size that minimizes total annual inventory costs.

Question 13

The (s, S) continuous review inventory system orders the same quantity Q when physical inventory reaches the reorder points.

Question 14

Electronic Product Code (EPC) is the only RFID standard adopted by the commercial sector and the U.S.Department of Defense.

Question 15

The periodic inventory review system reviews physical inventory at specific points in time.

Question 16

Dependent Demand must be forecasted based on market conditions.

Question 17

Inventory turnover ratio shows how many times a firm turns over its inventory in an accounting period.Faster turnovers are generally viewed as negative because it indicates instability in the firm's inventory level.

Question 18

The total annual inventory cost is the sum of the annual purchase cost, the annual holding cost, the annual capacity cost, and the annual ordering cost.

Question 19

The ABC inventory matrix shows an ABC inventory classification based on annual usage on the vertical axis and an ABC inventory classification based on physical inventory on the horizontal axis.

Question 20

In the Economic Manufacturing Quantity model, the annual consumption rate must be higher than the annual production rate.

Question 21

Which of the following is not an assumption of the economic order quantity model?

A)Demand is known, constant, and independent.
B)Lead time is known and constant.
C)Quantity discounts are not possible.
D)Production and use can occur simultaneously.
E)The only variable costs are setup cost and holding (or carrying) cost.

Question 22

If your company had an annual purchase cost of items equal to $2,000,000, an annual holding cost of $150,000 and an annual ordering cost of $750,000 this scenario would reveal that:

A)Your fixed lot size was lower than the EOQ
B)Your fixed lot size was equal to the EOQ
C)Your fixed lot size was higher than the EOQ
D)Nothing because there is insufficient information to discern where the EOQ would be.

Question 23

Companies hold a supply of inventory for all of the following reasons EXCEPT:

A)meet variation in product demand
B)increase production change/setup costs
C)allow production scheduling flexibility
D)purchase in bulk to take advantage of quantity discounts
E)maintain independence of operations (Decoupling)

Question 24

The EOQ model with quantity discounts attempts to determine

A)what is the lowest purchasing price.
B)whether to use fixed-quantity or fixed period order policy.
C)how many units should be ordered.
D)what is the shortest lead time.
E)what is the lowest amount of inventory necessary to satisfy a certain service level.

Question 25

If usage is constant, as order size increases, annual order costs ____ but annual carrying costs ____.

A)increase .....increase
B)decrease .....decrease
C)increase .....decrease
D)decrease .....increase
E)remain the same .....increase

Question 26

____, such as lubricants for machines, are used in the production process, but do not become parts of the final products.

A)Raw materials
B)Work-in-process
C)Maintenance, repair and operating supplies
D)Finished goods
E)Cycle stock

Question 27

Which of the following is a disadvantage of excessive inventory?

A)It hides production and other problems.
B)It leads to higher inventory ordering cost.
C)It leads to lower average inventory.
D)It eliminates cycle stock.
E)It reduces the need to conduct cycle count.

Question 28

What inventory factor may be omitted from the basic EOQ derivation because it is a constant?

A)Annual order-processing cost
B)Annual purchase cost of goods
C)Annual capital cost
D)Annual setup costs
E)all of these

Question 29

Which of the following cannot be considered as independent demand items?

A)wholesale and retail merchandise items
B)maintenance, repair, and operating supplies at a manufacturing company
C)maintenance, repair, and operating supplies at a service firm
D)raw material items that become part of the final product at a manufacturing firm
E)service industry items such as hospital supplies or office supplies for law firms

Question 30

Use this information below to calculate the optimal order quantity: Annual demand for backpacks is 43,000 units
The cost to place an order is $220
The per unit cost of the item is $60.00
The annual holding rate is 37.5%
Choose the closest answer.

A)920 units
B)250 units
C)710 units
D)830 units

Question 31

Which one of the following statements regarding the economic order quantity is true?

A)The EOQ model combines several different item orders to the same supplier.
B)If an order quantity is larger than the EOQ, the annual holding cost exceeds the annual ordering cost.
C)The EOQ model assumes a variable demand pattern.
D)When the interest rate drops, both the holding cost and the EOQ decreases.
E)EOQ is used to determine the optimum shipping quantity.

Question 32

The cost of a widget is $5, and the carrying rate is 40%; cost of processing an order is $25, annual demand is for 400 widgets, and supply and usage patterns are stable.What is the economic order quantity (EOQ)?

A)5
B)20
C)25
D)100
E)200

Question 33

Dependent demand and independent demand items differ in that I.for any product, all components are dependent-demand items
II)the need for independent-demand items is forecast
III)the need for dependent-demand items is calculated

A)I only
B)I & II only
C)I & III only
D)II & III only
E)I, II & III

Question 34

The primary purpose of the basic economic order quantity model is

A)to calculate the reorder point, so that replenishments take place at the proper time
B)to minimize the sum of carrying cost and holding cost
C)to maximize the customer service level
D)to minimize the sum of setup cost and holding cost
E)to calculate the optimum safety stock

Question 35

Use the graph below to answer the question(s).
In the ABC Inventory Matrix, inventory in area Z suggests

A)under-stocked A and B items.
B)under-stocked B and C items.
C)overstocked A and B items.
D)over-stocked B and C items.
E)inventory matches sales.

Question 36

Which of the following is not an example of an ordering cost for products purchased from a supplier?

A)the cost of transmitting the order
B)the cost of receiving the product
C)the cost associated with processing the invoice
D)the opportunity cost of not ordering from a least cost supplier
E)the cost of handling the product

Question 37

Use the graph below to answer the question(s).
In the ABC Inventory Matrix, inventory in area Y suggests

A)under-stocked A and B items.
B)under-stocked B and C items.
C)overstocked A and B items.
D)over-stocked B and C items.
E)inventory matches sales.

Question 38

Which of the following would most likely be considered a dependent demand item?

A)Bicycle tires used to assemble a bicycle
B)Television (TV)
C)Couch
D)Lawn Mower

Question 39

Which of the following is NOT an assumption of the classic Economic Order Quantity (EOQ)?

A)Lead time is known and constant.
B)Demand is known and constant.
C)Instantaneous replenishment.
D)There is no quantity discount.
E)The production rate must be greater than the consumption rate.

Question 40

If an item is ordered at its economic order quantity, the annual carrying cost should be:

A)slightly less than the annual ordering cost.
B)equal to the annual ordering cost.
C)twice the annual purchase price.
D)the square root of the annual ordering cost.
E)cannot be determined because there is insufficient information provided.

Question 41

If the actual order quantity is the economic order quantity in a problem that meets the assumptions of the model, the average amount of inventory on hand

A)is zero
B)is affected by the amount of product cost
C)is one-half of the economic order quantity
D)is smaller than the holding cost per unit
E)cannot be determined from the given information

Question 42

Name and briefly describe the four basic types of inventory.

Question 43

In the absence of demand and delivery lead time uncertainty, reorder point is the ____.

A)demand during lead time
B)safety stock
C)sum of demand during lead time and safety stock
D)economic order quantity
E)average inventory

Question 44

Describe the ABC inventory matrix, and how is it used to manage inventory.

Question 45

Name the two major RFID standards.

Question 46

The UNLV Bookstore sells a unique calculator to college students.The demand for this calculator has a normal distribution with an average daily demand of 20 units and a standard deviation of 4 units per day.The lead time for this calculator is very stable at 9 days.Compute the statistical reorder point that results in a 95 percent in-stock probability (Z = 1.65).

A)19.8 units
B)80 units
C)180 units
D)199.8 units
E)720 units

Question 47

Figure 7-1
Use the graph below to answer the question(s).
Which of the following is TRUE in relation to Figure 7-1?

A)Curve J represents the annual ordering cost, and curve K represents the annual holding cost.
B)A lot size of G has an annual total cost of about C.
C)At lot size H both holding costs and ordering costs exceed the annual total cost.
D)The EOQ is most likely lot size G, and curve L is the annual ordering cost curve.