Deck 21: CD - Inventory Management With Known Demand

Question 1

The average inventory level and the number of orders per year are inversely related.As one increases,the other decreases.

Answer 1

True

Question 2

The total cost curve is relatively flat near the EOQ.

Answer 2

True

Question 3

Inspection of goods for quality and quantity upon arrival is part of setup costs.

Answer 3

True

Question 4

In the EOQ model with planned shortages,Q* always will be smaller than S*.

Question 5

An inventory system whose current inventory level is monitored with each change is called a periodic-review system.

Question 6

EOQ inventory models are basically concerned with the timing of orders.

Question 7

If the cost of holding inventory is high relative to shortage costs,then allowing shortages may be a good policy.

Question 8

Administrative costs provide a strong incentive to place larger orders.

Question 9

The objective of an inventory policy is to minimize the total inventory cost per unit time.

Question 10

Estimating shortage costs is quite challenging because it is difficult to predict the consequences of shortages.

Question 11

The EOQ approach minimizes annual setup costs.

Question 12

Annual setup cost is inversely related to order size.

Question 13

Holding costs are a function of order size.

Question 14

Total cost in the EOQ model with quantity discounts is calculated in the same way as it is in the basic EOQ model.

Question 15

Interest,insurance,and opportunity costs are all associated with holding costs.

Question 16

When developing an inventory policy,the only relevant costs are the variable costs.

Question 17

An example of an inventory holding cost is the cost of moving goods to temporary storage after receipt from a supplier.

Question 18

The average inventory level is inversely related to order size.

Question 19

The objective of inventory management is to minimize the cost of holding inventory.

Question 20

Setup costs can occur through purchasing or manufacturing products.

Question 21

Planned shortages are permitted in the EOQ model with gradual replenishment.

Question 22

Subassemblies are an example of independent demand items.

Question 23

In order to achieve JIT,inventories must be minimized.

Question 24

Which of the following is not considered a holding cost?

A)Interest.
B)Insurance.
C)Depreciation.
D)Opportunity cost.
E)Stockout cost.

Question 25

In the basic EOQ model,if usage and production/delivery rates are equal,there will be no inventory buildup,and thus the order quantity cannot be calculated.

Question 26

Which of the following is not one of the assumptions of the basic EOQ model?

A)Demand rates are constant.
B)Orders arrive just when desired.
C)Each order is received in a single delivery.
D)Quantity discounts are available.
E)All of the above are necessary assumptions.

Question 27

The JIT philosophy recognizes that inventories are a necessary investment.

Question 28

JIT refers to a production system in which goods arrive for processing just as the preceding batch is completed.

Question 29

The goal of the basic EOQ model is to:

A)minimize order size.
B)minimize order cost.
C)minimize holding cost.
D)minimize the sum of purchasing and setup costs.
E)minimize the sum of setup and holding costs.

Question 30

Which of the following is a consequence of being out of stock of an item?

A)Customer dissatisfaction.
B)Delayed revenues.
C)Costs for additional record keeping.
D)Lost business.
E)All of the above.

Question 31

MRP is a system for determining optimal order quantities for dependent-demand products.

Question 32

Annual setup cost is a function of order size.

Question 33

In the EOQ model with quantity discounts,if holding costs are given as a percentage of unit price,a graph of the total cost curves will have the same EOQ for each curve.

Question 34

Using the EOQ model,if an item's holding cost increases,it will be ordered more frequently.

Question 35

In the EOQ model with quantity discounts,the optimum quantity will always be found on the lowest cost curve.

Question 36

In the basic EOQ model,annual holding cost is one-half of the total annual cost.

Question 37

The JIT philosophy is one of avoiding waste wherever it might occur in the production process.
Multiple Choice Questions

Question 38

Using the basic EOQ model,the higher an item's holding costs,the more frequently it will be ordered.

Question 39

Which of the following is not included in setup costs?

A)Typing up invoices.
B)Moving delivered goods to temporary storage.
C)Inspecting incoming goods for quality.
D)Taking an inventory to determine how much is needed.
E)Temporary storage of delivered goods.

Question 40

Safety stock is held to meet anticipated need.

Question 41

What is the EOQ for pepperoni?

A)20 pounds.
B)40 pounds.
C)60 pounds.
D)80 pounds.
E)100 pounds.

Question 42

Which of the following is not an assumption of the basic EOQ model?

A)The usage rate is constant.
B)Only one product is involved.
C)Holding costs are independent of price.
D)Each order is received in a single delivery.
E)There are no quantity discounts.

Question 43

If she was to order 80 pounds of pepperoni at a time,what would be the average inventory level?

A)20 pounds.
B)40 pounds.
C)60 pounds.
D)80 pounds.
E)100 pounds.

Question 44

What is the EOQ for beer?

A)4 cases.
B)8 cases.
C)10 cases.
D)20 cases.
E)80 cases.
Ann Chovies,owner of the Perfect Pasta Pizza Parlor,uses 20 pounds of pepperoni each day in preparing pizzas.Order costs for pepperoni are $10 per order,and holding costs are 4 cents per pound per day.Lead time for each order is 3 days,and the pepperoni itself costs $3 per pound.

Question 45

In the basic EOQ model,if annual demand is 50,holding cost is $2,and setup cost is $15,EOQ is approximately:

A)11.
B)20.
C)24.
D)28.
E)375.

Question 46

If the manager was to order 16 cases of beer at a time,what would be the average inventory level?

A)4 cases.
B)8 cases.
C)12 cases.
D)16 cases.
E)20 cases.

Question 47

At what point should the manager reorder?

A)0 cases remaining.
B)4 cases remaining.
C)12 cases remaining.
D)16 cases remaining.
E)20 cases remaining.

Question 48

Which of the following items would be most likely to have dependent demand?

A)Electric starters.
B)Toy trains.
C)Flowers.
D)Chocolate chip cookies.
E)None of the above.

Question 49

In the basic EOQ model,annual setup cost is equal to:

A)the EOQ multiplied by setup cost.
B)the EOQ divided by setup cost.
C)setup cost multiplied by the ratio of the annual demand to the EOQ.
D)setup cost multiplied by the ratio of the EOQ to annual demand.
E)setup cost multiplied by annual demand.

Question 50

Which of the following is not true for the EOQ model with gradual replenishment?

A)Demand is constant.
B)Production rate exceeds usage rate.
C)Run size exceeds maximum inventory.
D)There are no setup costs.
E)Average inventory is one-half maximum inventory.

Question 51

The introduction of quantity discounts will cause the optimum order quantity to be:

A)smaller.
B)unchanged.
C)greater.
D)smaller or unchanged.
E)unchanged or greater.

Question 52

In the basic EOQ model,if D = 60 per month,K = $12,and h = $10 per unit per month,EOQ is:

A)10.
B)12.
C)24.
D)72.
E)144.

Question 53

In the basic EOQ model,an annual demand of 40 units,a setup cost of $5,and a holding cost of $1/unit per year will result in an EOQ of:

A)20.
B)square root of 200.
C)200.
D)400.
E)None of the above.

Question 54

At what point should she reorder pepperoni?

A)20 pounds remaining.
B)40 pounds remaining.
C)60 pounds remaining.
D)80 pounds remaining.
E)100 pounds remaining.

Question 55

If the manager was to order 16 cases of beer at a time,what would be the length of an order cycle?

A)0.25 days.
B)3 days.
C)1 day.
D)4 days.
E)20 days.

Question 56

In the EOQ model with quantity discounts,with holding cost stated as a percentage of unit purchase price,in order for the EOQ of the lowest curve to be optimum,it must:

A)have the lowest total cost.
B)be in a feasible range.
C)be to the left of the pricebreak quantity for that price.
D)have the largest quantity compared to other EOQs.
E)None of the above.

Question 57

If she was to order 80 pounds of pepperoni at a time,what would be the length of an order cycle?

A)0 days.
B)0.25 days.
C)3 day.
D)4 days.
E)5 days.

Question 58

In the basic EOQ model,if annual demand doubles what is the effect on the EOQ?

A)It doubles.
B)It is four times its previous amount.
C)It is half its previous amount.
D)It is about 70% of its previous amount.
E)It increases by about 40%.

Question 59

An inventory management strategy should work towards:

A)increasing order sizes.
B)decreasing order sizes.
C)increasing safety stocks.
D)increasing demand.
E)None of the above.
The manager of the Quick Stop Corner Convenience Store (which never closes)sells four cases of beer each day.Ordering costs are $8 per order,and beer costs $0.80 per six-pack (each case of beer contains four six-packs).Orders arrive three days from the time they are placed.Daily holding costs are equal to 5% of the cost of the beer.

Question 60

Which of the following is not an assumption of the EOQ model with planned shortages?

A)Demand is constant.
B)Each order is received all at once.
C)Orders are received just when desired.
D)When a shortage occurs,customers are lost.
E)All are assumptions.

Question 61

Which of the following products would be most likely to have dependent demand?

A)Refrigerators.
B)Car engines.
C)TVs.
D)Brownies.
E)None of the above.

Question 62

Which of the following are part of a MRP system?

A)Production schedule.
B)Bill of materials.
C)Inventory status records.
D)All of the above.
E)None of the above.

Question 63

Which of the following would generally have independent demand?

A)Subassemblies.
B)Component parts.
C)Finished goods.
D)All of these.
E)None of these.

Question 64

Which of the following is not a benefit of JIT systems?

A)Inventories are reduced.
B)Space requirements are reduced.
C)Quality is increased.
D)Lead times are increased.
E)Disruptions in production are reduced.