Deck 20: Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

Question 1

American Supply Company has an economic order quantity for item A of 200 units.The annual demand for the product is 5,000 units, and the cost of placing an order is $8.If the company operates 200 days a year and the lead time for the item is five days, what is the reorder point if a safety stock of 50 units is maintained?

A) 4 days
B) 175 units
C) 25 units
D) 50 units

Answer 1

B

Question 2

Big Bus Company produces buses.In order to produce the seats for the buses, special equipment must be set up.The setup cost per frame is $40.The cost of carrying seats in inventory is $5 per seat per year.The company produces 100,000 buses per year. Total carrying costs (rounded to the nearest dollar) associated with the economic order quantity are

A) $3,613.
B) $3,163.
C) $506.
D) $316.

Answer 2

B

Question 3

Big Bus Company produces buses.In order to produce the seats for the buses, special equipment must be set up.The setup cost per frame is $40.The cost of carrying seats in inventory is $5 per seat per year.The company produces 100,000 buses per year. Total setup costs associated with the economic order quantity are

A) $3,953.
B) $3,612.
C) $3,162.
D) $1,778.

Answer 3

C

Question 4

Big Bus Company produces buses.In order to produce the seats for the buses, special equipment must be set up.The setup cost per frame is $40.The cost of carrying seats in inventory is $5 per seat per year.The company produces 100,000 buses per year. The number of seats that should be produced per setup in order to minimize the total setup and carrying costs is

A) 2,828 seats.
B) 1,265 seats.
C) 894 seats.
D) 566 seats.

Question 5

Which of the following is NOT a cost readily identified with inventory management?

A) cost of selling inventory
B) cost of not having stock on hand
C) cost of holding inventory
D) cost of acquiring inventory

Question 6

If inventory consists of goods produced internally, the inventory-related costs are

A) ordering and carrying costs.
B) setup costs and carrying costs.
C) ordering and setup costs.
D) both a and c.

Question 7

Which of the following is NOT considered a carrying cost?

A) insurance on the inventory
B) the opportunity cost of funds invested in inventory
C) storage costs
D) receiving costs

Question 8

Which of the following is NOT an opportunity cost associated with inventory management?

A) lost sales to customers
B) use of capital tied up in inventory investment
C) cost of expediting
D) all are opportunity costs

Question 9

The cost of acquiring inventory includes

A) setup costs for goods produced internally.
B) cost of insurance on the warehouse for inventory.
C) cost of not having a product when a customer wants one.
D) cost of obsolescence.

Question 10

Which of the following is NOT an example of an ordering cost?

A) receiving costs
B) salespeople's salaries costs
C) clerical costs of preparing documents
D) insurance costs on shipment

Question 11

Safety stock is

A) the cost of holding inventory.
B) a non-value activity and should never be considered.
C) not considered when calculating the reorder point.
D) extra inventory carried to serve as insurance against fluctuations in demand.

Question 12

Inventory management identifies an economic order quantity that

A) minimizes the total costs of ordering and carrying inventory.
B) maximizes the stockout costs.
C) minimizes the costs of ordering.
D) maximizes the cost of carrying inventory.

Question 13

American Supply Company has an economic order quantity for item A of 200 units.The annual demand for the product is 5,000 units, and the cost of placing an order is $8.The carrying cost per unit is

A) $2.00.
B) $141.00.
C) $4.00.
D) $6.00.

Question 14

If inventory consists of goods purchased from an outside supplier, the inventory-related costs are

A) ordering and carrying costs.
B) setup costs and carrying costs.
C) ordering and setup costs.
D) both a and c.

Question 15

The ordering of small, frequent orders

A) minimizes stockout costs.
B) minimizes ordering costs.
C) minimizes carrying costs.
D) minimizes all three.

Question 16

Which of the following costs are considered in the EOQ model?

A) ordering costs
B) selling costs
C) carrying costs
D) both a and c

Question 17

The cost of preparing equipment and facilities so they can be used to produce a particular product or component is known as

A) ordering costs.
B) setup costs.
C) carrying costs.
D) inventory costs.

Question 18

Air Frame Corporation increased the size of several inventory order quantities that had previously been determined using the EOQ model.What is the impact on the total annual ordering costs?

A) increase
B) no change
C) decrease
D) cannot be determined

Question 19

The cost of holding inventory is known as

A) ordering cost.
B) setup cost.
C) stock-out cost.
D) carrying cost.

Question 20

Which of the following equations determines the total annual ordering costs?

A) Cost of placing an order times the order quantity.
B) Cost of placing an order times the number of orders per year.
C) Cost of placing an order times one-half of the order quantity.
D) Unit carrying costs per year times the order quantity.

Question 21

Which of the following elements could be determined by using the economic order quantity formula?

A) the optimum size of production run
B) reorder point
C) safety stock
D) annual demand

Question 22

The order quantity used in the EOQ model is the quantity of inventory ordered

A) during one year.
B) for one job.
C) for one department.
D) at one time.

Question 23

The reorder point in the EOQ model is

A) the day of the month for reordering.
B) when all of the inventory has been used.
C) when the inventory level is below the order quantity.
D) the inventory level at which an order for additional units is placed.

Question 24

Burley Company has the following information available concerning one of its inventory items:

-The reorder point for the inventory item is

A) 200 units.
B) 970 units.
C) 320 units.
D) 500 units.

Question 25

Willie Manufacturing Company increased the size of several inventory order quantities that had previously been determined using the EOQ model.What is the impact on the total amount of annual carrying and ordering costs?

A) increase
B) no change
C) decrease
D) cannot be determined

Question 26

Figure 20 -2 Seal Company has the following information available concerning one of its inventory items:


- Refer to Figure 20-2.The reorder point for the inventory item is

A) 250 units.
B) 600 units.
C) 350 units.
D) 1,500 units.

Question 27

Waterhouse Company decreased the size of inventory order quantities that had previously been determined using the EOQ model.If demand remains the same, what is the impact on the number of orders made during the year?

A) increase
B) no change
C) decrease
D) cannot be determined

Question 28

Figure 20 - 1 Jan's Candle Company manufactures candles.The company buys wax in 100-pound containers that cost $15 each.The company uses 20,000 containers per year, and usage occurs evenly throughout the year.The average cost to carry a 100-pound container in inventory per year is $2, and the cost to place an order is $10.The company works 250 days per year.

-
Refer to Figure 20-1.The lead time is four working days, the average rate of usage is 80 containers per day, and the company carries a safety stock of 20 containers.What is the reorder point?

A) 360 containers
B) 340 containers
C) 320 containers
D) 300 containers

Question 29

In the economic order quantity equation, the numerator under the square root includes

A) annual demand and cost of placing an order.
B) annual demand and unit carrying cost.
C) unit carrying cost and cost of placing an order.
D) order quantity and cost of placing an order.

Question 30

Figure 20 -2 Seal Company has the following information available concerning one of its inventory items:


-Refer to Figure 20-2.The economic order quantity for this item is

A) 900,000 units.
B) 600 units.
C) 75 units.
D) 300 units.

Question 31

Figure 20 - 1 Jan's Candle Company manufactures candles.The company buys wax in 100-pound containers that cost $15 each.The company uses 20,000 containers per year, and usage occurs evenly throughout the year.The average cost to carry a 100-pound container in inventory per year is $2, and the cost to place an order is $10.The company works 250 days per year.

-
Refer to Figure 20-1.The economic order quantity (rounded) is

A) 894 containers.
B) 632 containers.
C) 447 containers.
D) 100 containers.

Question 32

Margaret Company has an economic order quantity for item B of 100 units.The annual demand for the product is 1,400 units, and the unit carrying cost per year is $7.What is the cost of placing an order?

A) $8
B) $25
C) $200
D) $2

Question 33

Burley Company has the following information available concerning one of its inventory items:

-The economic order quantity for this item is

A) 16 units.
B) 160,000 units.
C) 400 units.
D) 500 units.

Question 34

Margaret Company has an economic order quantity for item B of 100 units.The annual demand for the product is 1,400 units, and the unit carrying cost per year is $7.The company operates 200 days a year, the lead time for the item is ten days, and the safety stock is 100 units. What is the reorder point?

A) 70 units
B) 170 units
C) 1000 units
D) 100 units

Question 35

The economic order quantity is the order quantity that results in

A) the minimum total annual inventory costs.
B) the maximum total annual inventory costs.
C) no inventory shortages.
D) minimum ordering costs.

Question 36

Figure 20 -2 Seal Company has the following information available concerning one of its inventory items:


-Refer to Figure 20-2.If there is a delay in shipping the item, approximately how many days can be covered by the safety stock?

A) 100 days
B) 30 days
C) 25 days
D) 4 days

Question 37

Figure 20 - 1 Jan's Candle Company manufactures candles.The company buys wax in 100-pound containers that cost $15 each.The company uses 20,000 containers per year, and usage occurs evenly throughout the year.The average cost to carry a 100-pound container in inventory per year is $2, and the cost to place an order is $10.The company works 250 days per year.

-
Refer to Figure 20-1.The lead time is four working days and the average rate of usage is 80 containers per day.What is the reorder point?

A) 340 containers
B) 320 containers
C) 300 containers
D) 280 containers

Question 38

Burley Company has the following information available concerning one of its inventory items:

-If there is a delay in shipping the item, approximately how many days can be covered by the safety stock?

A) 40.00 days
B) 0.83 days
C) 8.00 days
D) 6.67 days

Question 39

Which of the following equations determines the total annual carrying costs when no safety stock is kept?

A) Cost of placing an order ´ Order quantity
B) Cost of placing an order ´ Number of orders per year
C) Cost of placing an order ´ One-half of the order quantity
D) Unit carrying costs per year ´ One-half of the order quantity

Question 40

Waterhouse Company decreased the size of inventory order quantities that had previously been determined using the EOQ model.What is the impact on the total amount of annual carrying and ordering costs?

A) increase
B) no change
C) decrease
D) cannot be determined

Question 41

A marker or card that specifies the quantity that the preceding process should manufacture is a

A) production Kanban.
B) vendor Kanban.
C) withdrawal Kanban.
D) deposit Kanban.

Question 42

One of the traditional reasons for holding inventory is to avoid a shutdown due to machine failure.The JIT solution is to

A) reduce setup costs.
B) reduce lead time.
C) use total preventive maintenance.
D) use total quality control.

Question 43

The objectives of JIT are achieved by

A) controlling costs.
B) improving delivery performance.
C) improving quality.
D) all of these.

Question 44

One of the traditional reasons for holding finished goods inventories is to ensure a firm's ability to meet delivery dates.The JIT solution is to

A) reduce setup costs.
B) reduce lead time.
C) use total preventive maintenance.
D) use total quality control.

Question 45

One of the traditional reasons for holding inventory is to avoid shutdowns due to unavailability of materials.The JIT solution is to

A) reduce setup costs.
B) reduce lead time.
C) use total preventive maintenance.
D) use long-term contracts with suppliers.

Question 46

Strategic objectives of JIT include

A) increasing profits.
B) improving a firm's competitive position.
C) increasing inventory.
D) both a and b.

Question 47

JIT reduces lead times to meet delivery dates by

A) reducing setup times.
B) expediting delivery to customers.
C) having more inventory available.
D) working overtime to fill orders.

Question 48

One of the traditional reasons for holding inventory is to take advantage of quantity discounts and hedge against future price increases.The JIT solution is to

A) reduce setup costs.
B) reduce lead time.
C) use long-term contracts with suppliers.
D) use total quality control.

Question 49

With JIT manufacturing, finished goods inventories are

A) kept high to avoid stockouts.
B) held in various locations for faster delivery to customers.
C) insignificant.
D) kept high to let the company take advantage of volume discounts.

Question 50

A marker or card that signals to a supplier the quantity of materials that need to be delivered and the time of delivery is a

A) production Kanban.
B) vendor Kanban.
C) withdrawal Kanban.
D) deposit Kanban.

Question 51

The Kanban system is used to

A) ensure parts or materials are available when needed.
B) signal when preventive maintenance is needed.
C) signal when a defective unit has been produced.
D) ensure idle time of workers is not wasted.

Question 52

JIT purchasing is done using

A) short-term contracts emphasizing price.
B) long-term contracts based on quality, reliability, and price.
C) short-term contracts based on quality, reliability, and price.
D) inventory to hedge against stockouts and price increases.

Question 53

A withdrawal Kanban specifies

A) how much should be produced to replace inventory.
B) the quantity that a subsequent process should withdraw from the preceding process.
C) when customers should be notified to pick up orders.
D) when suppliers should be notified to deliver more parts.

Question 54

Which of the following is NOT a common reason for shutdowns?

A) safety stock of inventory
B) defective materials or subassemblies
C) machine failure
D) unavailability of a material of subassembly

Question 55

A marker or card that specifies the quantity that a subsequent process should take from a preceding process is a

A) production Kanban.
B) vendor Kanban.
C) withdrawal Kanban.
D) deposit Kanban.

Question 56

One of the traditional reasons for holding inventory is to minimize total carrying costs and setup costs.The JIT solution is to

A) reduce setup costs.
B) reduce lead time.
C) use total preventive maintenance.
D) use total quality control.

Question 57

The JIT approach to inventory management

A) allows greater flexibility as to when products can be manufactured.
B) results in higher inventory levels but reduces ordering and setup costs.
C) results in lower inventory carrying costs.
D) none of these.

Question 58

JIT avoids shutdowns due to materials shortage in all of the following ways EXCEPT

A) using total preventive maintenance.
B) holding inventory.
C) using total quality control to reduce defective materials.
D) working with suppliers to ensure the availability of materials.

Question 59

One of the traditional reasons for holding inventory is to avoid shutdowns due to defective parts.The JIT solution is to

A) reduce setup costs.
B) reduce lead time.
C) use total preventive maintenance.
D) use total quality control.

Question 60

When comparing the traditional approach of inventory management to JIT, which of the following statements is true?

A) The traditional approach accepts the existence of setup costs, but not carrying costs or inventories. JIT accepts the existence of setup and carrying costs, but pushes for zero inventories.
B) The traditional approach accepts the existence of carrying costs and inventories, but not setup costs. JIT accepts the existence of setup costs but not carrying costs and pushes for zero inventories.
C) The traditional approach accepts the existence of both setup costs and carrying costs and attempts to find the order quantity that best balances those costs. JIT does not accept either setup costs or carrying costs and pushes for zero inventory levels.
D) The traditional approach does not accept carrying costs or setup costs. JIT minimizes both setup and carrying costs by finding the best order quantity to balance these costs.

Question 61

The following information is available for Walters Furniture Company, which sells two products:

-There are 200 hours available in the plant and 200 square feet of metal available per operating period.
What is the objective function for maximizing sales?

A) Maximize 200X + 100Y
B) Maximize 180X + 90Y
C) Maximize 50X + 40Y
D) Minimize 200X + 100Y

Question 62

A linear programming problem has the following objective function: 20X + 40Y + 60Z. If the optimal solution provided by the model is to produce and sell 100, 200, and 300 units of X, Y, and Z, respectively, what is the expected return?

A) $36,000
B) $28,000
C) $120
D) $24,000

Question 63

Figure 20-4 Heft Company produces A and B with contribution margins per unit of $40 and $30, respectively.Only 500 labor hours and 300 machine hours are available for production.
Time requirements to produce one unit of A and B are as follows:


- Refer to Figure 20-4.What is the constraint on machine hours for Heft Company?

A) 1A + 4B £ 500
B) 5A + 2B £ 500
C) 1A + 4B £ 300
D) 40A + 30B £ 500

Question 64

Figure 20 - 5 The following information is available for Wilson Trailer Company, which sells two products:
There are 100 hours available in the plant and 75 square feet of vinyl available per operating period.

-
Refer to Figure 20-5.The constraint equation representing the materials available for the production processes is

A) 2A + 4B ³ 100.
B) 16A + 12B = 75.
C) 2A + 4B = 200.
D) 16A + 12B £ 75.

Question 65

Hassel Company manufactures two different products, X and Y.The company has 100 pounds of materials and 300 direct labor hours available for production. The time requirements and contribution margins per unit are as follows:


- What is the equation for the constraint on materials?

A) $1X + $2Y £ 100
B) $4X + $2Y £ 100
C) $4X + $5Y £ 100
D) $4X + $5Y £ 300

Question 66

A linear programming model would NOT include which of the following items?

A) independent variables
B) networks
C) dependent variables
D) objective function

Question 67

Tiffany Manufacturing Company produces X and Y with contribution margins per unit of $10 and $90, respectively.Only 200 labor hours and 400 machine hours are available for production. Time requirements to produce one unit of X and Y are as follows:


-What is the objective function to maximize profits for Tiffany Manufacturing Company?

A) Minimize 10X + 90Y
B) Maximize 1X + 2Y
C) Maximize 10X + 90Y
D) Minimize 1X + 2Y

Question 68

If the objective is to maximize profits in a linear programming problem, the coefficients of the variables in the objective function should be the

A) selling price per unit.
B) variable costs per unit.
C) contribution margin per unit.
D) fixed costs per unit.

Question 69

The correct order for the four steps that must be followed to solve problems graphically is

A) Graph each constraint, Identify the feasible set of solutions, Identify all the corner-point values in the feasible set, Select the corner point that yields the largest value for the objective function.
B) Identify the feasible set of solutions, Graph each constraint, Identify all the corner-point values in the feasible set, Select the corner point that yields the largest value for the objective function.
C) Identify the feasible set of solutions, Identify all the corner-point values in the feasible set, Graph each constraint, Select the corner point that yields the largest value for the objective function.
D) Graph each constraint, Identify all the corner-point values in the feasible set, Identify the feasible set of solutions, Select the corner point that yields the largest value for the objective function.

Question 70

Figure 20 - 5 The following information is available for Wilson Trailer Company, which sells two products:
There are 100 hours available in the plant and 75 square feet of vinyl available per operating period.

-
Refer to Figure 20-5.What is the objective function for maximizing profits?

A) Maximize $15A + $30B
B) Maximize $50A + $80B
C) Maximize $35A + $50B
D) Minimize $15A + $30B

Question 71

Heft Company produces A and B with contribution margins per unit of $40 and $30, respectively.Only 500 labor hours and 300 machine hours are available for production. Time requirements to produce one unit of A and B are as follows:
What is the constraint on machine hours for Heft Company?

A) 1A + 4B £ 500
B) 5A + 2B £ 500
C) 1A + 4B £ 300
D) 40A + 30B £ 500

Question 72

Tiffany Manufacturing Company produces X and Y with contribution margins per unit of $10 and $90, respectively.Only 200 labor hours and 400 machine hours are available for production. Time requirements to produce one unit of X and Y are as follows:


- What is the constraint on labor hours for Tiffany Manufacturing Company?

A) 10X + 90Y £ 200
B) 1X + 2Y £ 400
C) 1X + 2Y £ 200
D) 1X + 4Y £ 400

Question 73

Loose constraints are best defined as

A) a constraint where the limiting factor is machine hours or labor availability.
B) a constraint where the limiting factor could be something like market demand.
C) a constraint where a product mix uses all of the limited resources of the constraint.
D) a constraint whose limited resources are not fully used by a product mix.

Question 74

A linear programming problem has an objective function of 10X + 12Y.If the optimal solution provided by the model is to produce and sell 400 units of X and 1,000 units of Y, the expected return is

A) $1,400.
B) $40,800.
C) $14,800.
D) $16,000.

Question 75

Hassel Company manufactures two different products, X and Y.The company has 100 pounds of materials and 300 direct labor hours available for production. The time requirements and contribution margins per unit are as follows:


-What is the objective function for maximizing profits?

A) Minimize $4X + $5Y
B) Maximize $4X + $5Y
C) Maximize $1X + $2Y
D) Maximize $4X + $2Y

Question 76

Hassel Company manufactures two different products, X and Y.The company has 100 pounds of materials and 300 direct labor hours available for production. The time requirements and contribution margins per unit are as follows:


-What is the equation for the constraint on direct labor?

A) $1X + $2Y £ 300
B) $4X + $2Y £ 100
C) $4X + $5Y £ 100
D) $4X + $2Y £ 300

Question 77

The following information is available for Walters Furniture Company, which sells two products:

-There are 200 hours available in the plant and 200 square feet of metal available per operating period.
The constraint equation representing processing time available is

A) 4X + 6Y ³ 200.
B) 4X + 6Y £ 200.
C) 30X + 18Y £ 200.
D) 4X + 6Y £ 400.

Question 78

Figure 20-4 Heft Company produces A and B with contribution margins per unit of $40 and $30, respectively.Only 500 labor hours and 300 machine hours are available for production.
Time requirements to produce one unit of A and B are as follows:


- Refer to Figure 20-4.What is the constraint on labor hours for Heft Company?

A) 5A + 1B £ 500
B) 5A + 2B £ 500
C) 1A + 4B £ 300
D) 40A + 30B £ 500

Question 79

Tiffany Manufacturing Company produces X and Y with contribution margins per unit of $10 and $90, respectively.Only 200 labor hours and 400 machine hours are available for production. Time requirements to produce one unit of X and Y are as follows:


-What is the constraint on machine hours for Tiffany Manufacturing Company?

A) 10X + 90Y £ 200
B) 1X + 2Y £ 400
C) 1X + 2Y £ 200
D) 5X + 1Y £ 400

Question 80

Figure 20-4 Heft Company produces A and B with contribution margins per unit of $40 and $30, respectively.Only 500 labor hours and 300 machine hours are available for production.
Time requirements to produce one unit of A and B are as follows:


-Refer to Figure 20-4.What is the objective function to maximize profits for Heft Company?

A) Minimize 5A + 2B
B) Maximize 1A + 4B
C) Maximize 40A + 30B
D) Minimize 40A + 30B