Deck 17: Inventory Control

Question 1

Using the probability approach we assume that the demand for inventory over a period of time is normally distributed.

Answer 1

True

Question 2

One of the basic purposes of inventory analysis in manufacturing and stockkeeping services is to determine the Level of quality to specify.

Answer 2

False

Question 3

An inventory system is a set of policies and controls that monitors Levels of inventory and determines what Levels should be maintained,when stock should be replenished and how large orders should be.

Answer 3

True

Question 4

One of the basic purposes of inventory analysis in manufacturing and stockkeeping services is to determine how large the orders to vendors should be.

Question 5

Fixed-order quantity inventory systems determine the order point,R and the order quantity,Q values.

Question 6

Fixed-time period inventory models are "event-triggered".

Question 7

The fixed-time period inventory system has a smaller average inventory than the fixed-order quantity system because it must also protect against stockouts during the review period when inventory is checked.

Question 8

The computation of a firm's inventory position is found by taking the inventory on hand and adding it to the on-order inventory and then subtracting back-ordered inventory.

Question 9

In inventory models,high holding costs tend to favor low inventory Levels and frequent replenishment.

Question 10

If the cost to change from one product to another were zero the lot size would be very small.

Question 11

One of the basic purposes of inventory analysis in manufacturing and stockkeeping services is to specify when items should be ordered.

Question 12

Fixed-order quantity inventory models are "event-triggered".

Question 13

Safety stock can be defined as the amount of inventory carried in addition to the expected demand.

Question 14

Shortage costs are precise and easy to measure.

Question 15

The fixed-order quantity inventory model favors less expensive items because average inventory is lower.

Question 16

In inventory models,high holding costs tend to favor high inventory Levels.

Question 17

Dependent demand inventory Levels are usually managed by calculations using calculus-driven,cost-minimizing models.

Question 18

Inventory is defined as the stock of any item or resource used in an organization.

Question 19

The fixed-order quantity inventory model requires more time to maintain because every addition or withdrawal is logged.

Question 20

The fixed-order quantity inventory model is more appropriate for important items such as critical repair parts because there is closer monitoring and therefore quicker response to a potential stockout.

Question 21

A two-bin inventory system actually requires four physical bins to work.

Question 22

In the fixed-time period model it is necessary to determine the inventory currently on hand to calculate the size of the order to place with a vendor.

Question 23

When stocked items are sold,the optimal inventory decision using marginal analysis is to stock that quantity where profit from the sale or use of the last unit is equal to or greater than the losses if the last unit remains unsold.

Question 24

If demand for an item is normally distributed we plan for demand to be twice the average demand and carry 2 standard deviations worth of safety stock inventory.

Question 25

The optimal stocking decision in inventory management,when using marginal analysis,occurs at the point where the benefits derived from carrying the next unit are more than the costs for that unit.

Question 26

In a one-bin inventory system the inventory Level is brought up to its predetermined maximum at a fixed time period (such as weekly).

Question 27

Which of the following is one of the categories of manufacturing inventory?

A)Economic Order Inventory
B)Work-in-process
C)Quality units
D)JIT Inventory
E)Re-order point

Question 28

The standard fixed-time period model assumes that inventory is never counted but determined by EOQ measures.

Question 29

Some inventory situations involve placing orders to cover only one demand period or to cover short-lived items at frequent intervals.

Question 30

Cycle counting is a physical inventory-taking technique in which inventory is counted on a frequent basis rather than once or twice a year.

Question 31

Safety stock is not necessary in any fixed-time period system.

Question 32

Fixed-order quantity systems assume a random depletion of inventory,with less than an immediate order when a reorder point is reached.

Question 33

Fixed-time period inventory models generate order quantities that vary from time period to time period,depending on the usage rate.

Question 34

Safety stock can be computed when using the fixed-order quantity inventory model by multiplying a "z" value representing the number of standard deviations to achieve a service Level or probability by the standard deviation of daily demand.

Question 35

The key difference between a fixed-order quantity inventory model where demand is known and one where demand is uncertain is in computing the reorder point.

Question 36

Which of the following is not one of the categories of manufacturing inventory?

A)Raw materials
B)Finished products
C)Component parts
D)Just-in-time
E)Supplies

Question 37

A one-bin system of inventory involves periodic replenishment no matter how few inventory items are needed.

Question 38

In a two-bin system for inventory,items are used from one bin and the second bin provides a large enough amount to ensure that the stock can be replenished before running out.

Question 39

The "sawtooth effect",named after turn-around artist Al "chainsaw" Dunlap is the severe reduction of inventory and service Levels that occurs when a firm has gone through a hostile takeover.

Question 40

Safety stock can be computed when using the fixed-order quantity inventory model by multiplying a "z" value representing the number of standard deviations to achieve a service Level or probability by the standard deviation of lead time.

Question 41

In making any decision that affects inventory size,which of the following costs do not need to be considered?

A)Holding costs
B)Setup costs
C)Ordering costs
D)Fixed costs
E)Shortage costs

Question 42

If annual demand is 35,000 units,the ordering cost is $50 per order and the holding cost is $0.65 per unit per year,which of the following is the optimal order quantity using the fixed-order quantity model?

A)5,060
B)2,320
C)2,133
D)2,004
E)1,866

Question 43

If annual demand is 50,000 units,the ordering cost is $25 per order and the holding cost is $5 per unit per year,which of the following is the optimal order quantity using the fixed-order quantity model?

A)909
B)707
C)634
D)500
E)141

Question 44

Using the fixed-order quantity model,which of the following is the total ordering cost of inventory given an annual demand of 36,000 units,a cost per order of $80 and a holding cost per unit per year of $4?

A)$849
B)$1,200
C)$1,889
D)$2,267
E)$2,400

Question 45

Which of the following is not an assumption of the basic fixed-order quantity inventory model?

A)Ordering or setup costs are constant
B)Inventory holding cost is based on average inventory
C)Diminishing returns to scale of holding inventory
D)Lead time is constant
E)Demand for the product is uniform throughout the period

Question 46

When developing inventory cost models,which of the following are not included as costs to place an order?

A)Phone calls
B)Taxes
C)Clerical
D)Calculating quantity to order
E)Postage

Question 47

Which of the following are fixed-order quantity inventory models?

A)Economic order quantity model
B)The ABC model
C)Periodic replenishment model
D)Cycle counting model
E)P model

Question 48

Assuming no safety stock,what is the re-order point (R)given an average daily demand of 50 units,a lead time of 10 days and 625 units on hand?

A)550
B)500
C)715
D)450
E)475

Question 49

Which of the following is an assumption of the basic fixed-order quantity inventory model?

A)Lead times are averaged
B)Ordering costs are variable
C)Price per unit of product is constant
D)Back orders are allowed
E)Stock-out costs are high

Question 50

When material is ordered from a vendor,which of the following is not a reason for delays in the order arriving on time?

A)Normal variation in shipping time
B)A shortage of material at the vendor's plant causing backlogs
C)An unexpected strike at the vendor's plant
D)A lost order
E)Redundant ordering systems

Question 51

Which of the following is not a reason to carry inventory?

A)To provide a safeguard for variation in raw material delivery time
B)To take advantage of economic purchase-order size
C)To maintain independence of operations
D)To meet variation in product demand
E)To keep the stock out of the hands of competitors

Question 52

Which of the following is a perpetual system for inventory management?

A)Fixed-time period
B)Fixed-order quantity
C)P model
D)First-in-first-out
E)The wheel of inventory

Question 53

Assuming no safety stock,what is the re-order point (R)given an average daily demand of 78 units and a lead time of 3 days?

A)421
B)234
C)78
D)26
E)312

Question 54

Which of the following is the set of all cost components that make up the fixed-order quantity total cost (TC)function?

A)Annual purchasing cost,annual ordering cost,fixed cost
B)Annual holding cost,annual ordering cost,unit cost
C)Annual holding cost,annual ordering cost,annual purchasing cost
D)Annual lead time cost,annual holding cost,annual purchasing cost
E)Annual unit cost,annual set up cost,annual purchasing cost

Question 55

Firms keep supplies of inventory for which of the following reasons?

A)To maintain dependence of operations
B)To provide a feeling of security for the workforce
C)To meet variation in product demand
D)To hedge against wage increases
E)To protect against supplier design changes

Question 56

Which of the following is usually included as an inventory holding cost?

A)Breakage
B)Order placing
C)Typing up an order
D)Quantity discounts
E)Annualized cost of materials

Question 57

Which of the following is not included as an inventory holding cost?

A)Annualized cost of materials
B)Handling
C)Insurance
D)Pilferage
E)Storage facilities

Question 58

Which of the following is the symbol for the cost of placing an order in the fixed-order quantity inventory model?

A)C
B)TC
C)H
D)Q
E)S

Question 59

If annual demand is 12,000 units,the ordering cost is $6 per order and the holding cost is $2.50 per unit per year,which of the following is the optimal order quantity using the fixed-order quantity model?

A)576
B)240
C)120.4
D)60.56
E)56.03

Question 60

Which of the following are fixed-time period inventory models?

A)Periodic system model
B)The two bin system
C)Q model
D)EOQ Formula
E)Just-in-time model

Question 61

If a vendor has correctly used marginal analysis to select their stock Levels for the day (as in the newsperson problem)and the profit resulting from the last unit being sold (MP)is $120 and the loss resulting from that unit if it is not sold (ML)is $360,which of the following is the probability of the last unit being sold?

A)Greater than 0.10
B)Greater than 0.15
C)Greater than 0.25
D)Greater than 0.45
E)None of the above

Question 62

Assume that annual demand for a part is 40,000 units,the ordering cost is $5 per order and the annual holding cost of carrying inventory in stock is 10% of the cost of the unit.A quantity discount will reduce the unit price from $5.00 for an order placed between 0 to 2,499 units to $4.95 for an order of the size of 2,500 units or more.Using a price-break inventory model,which of the following is the optimal order quantity?

A)894 units
B)899 units
C)2,499 units
D)2,500 units
E)2,709.4 units

Question 63

If it takes a supplier four days to deliver an order once it has been placed and the standard deviation of daily demand is 10,which of the following is the standard deviation of usage during lead time?

A)10
B)20
C)40
D)100
E)400

Question 64

Using the probability approach to determine an inventory safety stock and wanting to be 95 percent sure of covering inventory demand,which of the following is the number of standard deviations necessary to have the 95 percent service probability assured?

A)1.28
B)1.64
C)1.96
D)2.00
E)2.18

Question 65

If a vendor has correctly used marginal analysis to select their stock Levels for the day (as in the newsperson problem)and the profit resulting from the last unit being sold (MP)is $0.90 and the loss resulting from that unit if it is not sold (ML)is $0.50,which of the following is the probability of the last unit being sold?

A)Greater than 0.357
B)Greater than 0.400
C)Greater than 0.556
D)Greater than 0.678
E)None of the above

Question 66

Using the fixed-time period inventory model and given an average daily demand of 75 units,10 days between inventory reviews,2 days for lead time,50 units of inventory on hand,a service probability of 95 percent and a standard deviation of demand over the review and lead time of 8 units,which of the following is the order quantity?

A)863
B)948
C)1,044
D)1,178
E)4,510

Question 67

In order to determine the standard deviation of usage during lead time in the reorder point formula for a fixed-order quantity inventory model which of the following must be computed first?

A)Standard deviation of daily demand
B)Number of standard deviations for a specific service probability
C)Stockout cost
D)Economic order quantity
E)Safety stock Level

Question 68

A company wants to determine its reorder point (R).Demand is variable and they want to build a safety stock into R.The company wants to have a service probability coverage of 95 percent.If average daily demand is 8,lead time is 3 days and the standard deviation of usage during lead time is 2,which of the following is the desired value of R?

A)About 17.9
B)About 19.7
C)About 24.0
D)About 27.3
E)About 31.2

Question 69

Using the fixed-time period inventory model and given an average daily demand of 15 units,3 days between inventory reviews,1 day for lead time,30 units of inventory on hand,a service probability of 98 percent and a standard deviation of daily demand is 3 units,which of the following is the order quantity?

A)About 30.4
B)About 42.3
C)About 53.7
D)About 56.8
E)About 59.8

Question 70

Which of the following is not necessary to compute the order quantity using the fixed-time period model with safety stock?

A)Forecast average daily demand
B)Safety stock
C)Inventory currently on hand
D)Ordering cost
E)Lead time in days

Question 71

A company has recorded the last five days of daily demand on their only product.Those values are 120,125,124,128 and 133.The time from when an order is placed to when it arrives at the company from its vendor is 5 days.Assuming the basic fixed-order quantity inventory model fits this situation and no safety stock is needed,which of the following is the reorder point (R)?

A)120
B)126
C)630
D)950
E)1,200

Question 72

Using the fixed-time period inventory model and given an average daily demand of 200 units,4 days between inventory reviews,5 days for lead time,120 units of inventory on hand,a "z" of 1.96 and a standard deviation of demand over the review and lead time of 3 units,which of the following is the order quantity?

A)About 1,086
B)About 1,686
C)About 1,806
D)About 2,206
E)About 2,686

Question 73

If it takes a supplier 25 days to deliver an order once it has been placed and the standard deviation of daily demand is 20,which of the following is the standard deviation of usage during lead time?

A)50
B)100
C)400
D)1,000
E)1,600

Question 74

To take into consideration demand uncertainty in reorder point (R)calculations,what do we add to the product of the average daily demand and lead time in days when calculating the value of R?

A)The product of average daily demand times a standard deviation of lead time
B)A "z" value times the lead time in days
C)The standard deviation of vendor lead time times the standard deviation of demand
D)The product of lead time in days times the standard deviation of lead time
E)The product of the standard deviation of demand variability and a "z" score relating to a specific service probability

Question 75

You would like to use the fixed-time period inventory model to compute the desired order quantity for a company.You know that vendor lead time is 10 days and the number of days between reviews is 15.Which of the following is the standard deviation of demand over the review and lead time period if the standard deviation of daily demand is 10?

A)25
B)40
C)50
D)73
E)100

Question 76

A company has recorded the last six days of daily demand on a single product they sell.Those values are 37,115,93,112,73 and 110.The time from when an order is placed to when it arrives at the company from its vendor is 3 days.Assuming the basic fixed-order quantity inventory model fits this situation and no safety stock is needed,which of the following is the reorder point (R)?

A)540
B)270
C)115
D)90
E)60

Question 77

A company wants to determine its reorder point (R).Demand is variable and they want to build a safety stock into R.If the average daily demand is 12,the lead time is 5 days,the desired "z" value is 1.96 and the standard deviation of usage during lead time is 3,which of the following is the desired value of R?

A)About 6
B)About 16
C)About 61
D)About 66
E)About 79

Question 78

You would like to use the fixed-time period inventory model to compute the desired order quantity for a company.You know that vendor lead time is 5 days and the number of days between reviews is 7.Which of the following is the standard deviation of demand over the review and lead time if the standard deviation of daily demand is 8?

A)About 27.7
B)About 32.8
C)About 35.8
D)About 39.9
E)About 45.0

Question 79

Assume that annual demand for a part is 15,000 units,the ordering cost is $20 per order and the annual holding cost of carrying inventory in stock is 50% of the cost of the unit.A quantity discount will reduce the unit price from $5.00 for an order placed between 0 to 1,499 units to $4.95 for an order of the size of 1,500 units or more.Using a price-break inventory model,which of the following is the optimal order quantity?

A)357 units
B)490 units
C)1,500 units
D)1,992 units
E)None of the above

Question 80

If it takes a supplier two days to deliver an order once it has been placed and the daily demand for three days has been 120,124 and 125,which of the following is the standard deviation of usage during lead time?

A)About 2.16
B)About 3.05
C)About 4.66
D)About 5.34
E)About 9.30