Deck 12: Inventory Management

Question 1

Percentage of Line Items Shipped on Schedule recognizes that:

A) not all orders are equal but fails to take into account the dollar value of orders.
B) not all orders are equal but this can be compensated for.
C) there are differences in orders in terms of both line items and dollar value.
D) an absolute measure of manufacturing or service time lost because material or parts are not available.
E) all orders and customers should be treated equally.

Answer 1

A

Question 2

Finished goods in transit to the customer are called what?

A) WIP inventory
B) components inventory
C) raw materials inventory
D) distribution inventory
E) MRO inventory

Answer 2

D

Question 3

Which of the following allow you to calculate the average amount of inventory in transit?

A) ATI - (365*d)/t
B) ATI - (t/365)*d
C) ATI = 365*t*d
D) ATI = (tD)/365
E) ATI - (365*t)/d

Answer 3

E

Question 4

If a company carries 13 weeks of supply, what is the inventory turnover?

A) 0.077
B) 4
C) 7.77
D) 676
E) 0.25

Question 5

Percentage of orders shipped on schedule is a good measure of finished goods customer service if:

A) all orders and customers have similar cost impacts.
B) all orders and customers have similar value.
C) all orders and customers have similar backorder requirements.
D) later deliveries are not considered.
E) late deliveries contribute to the overall demand.

Question 6

Which inventory function provides a hedge against inflation?

A) anticipation inventory
B) fluctuation inventory
C) lot-size inventory
D) MRO inventory
E) speculative inventory

Question 7

What are purchased items or extracted materials that will be transformed into components or products called?

A) raw materials inventory
B) finished goods inventory
C) work-in-process inventory
D) distribution inventory
E) MRO inventory

Question 8

Which inventory function provides a cushion against unexpected supply shortage?

A) anticipation inventory
B) fluctuation inventory
C) lot-size inventory
D) transportation inventory
E) speculative inventory

Question 9

The formula to calculate a week's of supply is?

A) weeks of supply = average weekly usage in dollars/average inventory on hand in dollars
B) weeks of supply = average weekly usage/12 * average inventory on hand in dollars
C) weeks of supply = average inventory on hand in dollars/average weekly usage in dollars
D) weeks of supply = average inventory on hand * average weekly usage in dollars
E) weeks of supply = average inventory on hand * average annual usage in dollars * 12

Question 10

What does WIP stand for?

A) work-in-process
B) waiting inventory position
C) warning of inventory position
D) weight of inventory position
E) waiting inventory potential

Question 11

What is the formula for inventory turnover?

A) annual cost of goods sold / average inventory in dollars
B) annual sales / average inventory in dollars
C) average inventory in dollars / annual cost of goods sold
D) average inventory in dollars / annual sales
E) annual cost of goods sold / annual holding cost

Question 12

In inventory management, when discussing customer service we mean:

A) whether the customer is available when the product is.
B) whether the product is available regardless if the customer desires it or not.
C) whether the product is available when the customer wants it.
D) whether the customer wants the available product.
E) whether repair of the product is available.

Question 13

Companies can achieve cost-efficient operations by using which of the following inventory approaches?

A) work-in-process to buffer operations
B) inventory building to leverage reduced setup costs
C) JIT inventory to reduce overall cost
D) level work force maintenance through
E) speculative selling

Question 14

Which is the primary inventory function that is activated after coupons are distributed to customers?

A) anticipation inventory
B) fluctuation inventory
C) lot-size inventory
D) MRO inventory
E) speculative inventory

Question 15

Which of the following is not affected by decisions about how much inventory to hold?

A) item costs
B) holding costs
C) depreciation
D) ordering costs
E) stockout costs

Question 16

Which inventory function exists between the manufacturing plant and the distribution plant?

A) anticipation inventory
B) fluctuation inventory
C) lot-size inventory
D) transportation inventory
E) speculative inventory

Question 17

Hand tools, lubricants, and cleaning supplies are usually examples of what?

A) WIP inventory
B) finished goods inventory
C) raw materials inventory
D) MRO inventory
E) distribution inventory

Question 18

Which inventory function specifically is designed to allow the company to maintain a level production strategy?

A) anticipation inventory
B) fluctuation inventory
C) lot-size inventory
D) transportation inventory
E) speculative inventory

Question 19

Which of the following inventory functions does not involve end products sold to customers?

A) anticipation inventory
B) fluctuation inventory
C) lot-size inventory
D) MRO inventory
E) speculative inventory

Question 20

Which inventory function helps firms garner quantity discounts?

A) anticipation inventory
B) fluctuation inventory
C) lot-size inventory
D) transportation inventory
E) speculative inventory

Question 21

If annual demand is 24,000 units, orders are placed every 0.5 months, and the cost to place an order is $50, what is the annual ordering cost?

A) $50
B) $1,200,000
C) $2,400,000
D) $1,200
E) $600,000

Question 22

In the service industry it is considered good performance when a company has an inventory loss of only:

A) 1%
B) 2%
C) 3%
D) 4%
E) 5%

Question 23

Which basic EOQ assumption does the EPQ model relax?

A) Lead time is known and constant.
B) Demand is known and constant.
C) Quantity discounts are not considered.
D) Orders arrive at once.
E) Back orders are not allowed.

Question 24

Which of the following is an assumption of the basic EOQ model?

A) Lead time is unknown.
B) Demand may be seasonal.
C) Orders can arrive in partial shipments.
D) Quantity discounts are not considered.
E) Lost sales are allowed, but not back orders.

Question 25

For the basic EOQ model, what is the formula for the total annual cost?

A)
B) (D/Q)S + (Q/2)H
C) (Q/D)S + (Q/2)H
D) DQ/S + 2Q/H
E)

Question 26

A SKU is a ______________ at a _____________ geographic location.

A) cost, uniquely identified
B) profit, generally classified
C) specific item, generally classified
D) specific item, particular
E) general item, particular

Question 27

If inventory records fail to accurately reflect the quantity of materials available, all except which of the following may occur?

A) poor customer service
B) continuous operations
C) lower productivity
D) poor material planning
E) excessive expediting

Question 28

If annual demand is 48,000 units, orders are placed in quantities of 2000 units at a time, and the cost to place an order is $80, what is the annual ordering cost?

A) $1,920
B) $3,840,000
C) $160,000
D) $80
E) $4,160

Question 29

If the EOQ is ordered, which of the following is true?

A) Annual ordering cost exceeds annual holding cost.
B) Annual holding cost exceeds annual ordering cost.
C) Annual ordering cost is equal to annual holding cost.
D) The sum of annual ordering cost plus annual holding cost is maximized.
E) The annual holding cost curve is decreasing.

Question 30

Which of the following is an assumption of the basic EOQ model?

A) Lead time is unknown.
B) Demand is known and constant.
C) Orders can arrive in partial shipments.
D) Quantity discounts are considered.
E) Lost sales are allowed, but not back orders.

Question 31

In a periodic review inventory system, how many units are ordered?

A) Target inventory level
B) Target inventory level  on hand balance
C) Max inventory level  min inventory level
D) The EOQ
E) Average demand during review period + average demand during lead time

Question 32

If the costs (S and H) and demands (D) are the same, which of the following is not true with regard to the EPQ model as compared to the EOQ model?

A) The EPQ model produces a higher total annual cost.
B) The maximum inventory level is lower under the EPQ model than under the EOQ model.
C) Both models use the same formula to compute annual ordering cost.
D) The inventory depletion rate is the same for both models.
E) The two models use different formulas to compute annual holding cost.

Question 33

Which of the following is an assumption of the basic EOQ model?

A) Lead time is unknown.
B) Demand may be seasonal.
C) Orders arrive at once (in one lot).
D) Quantity discounts are considered.
E) Lost sales are allowed, but not back orders.

Question 34

What does EPQ stand for?

A) ensuring purchasing quality
B) economic production quota
C) economic production quantity
D) economic purchasing quota
E) economic purchasing quantity

Question 35

Which of the following is an assumption of the basic EOQ model?

A) Lead time is known and constant.
B) Demand may be seasonal.
C) Orders can arrive in partial shipments.
D) Quantity discounts are considered.
E) Lost sales are allowed, but not back orders.

Question 36

For the basic EOQ model, how many units should be ordered each time that an order is placed?

A)
B) (D/Q)S + (Q/2)H
C) (Q/D)S + (Q/2)H
D) DQ/S + 2Q/H
E)

Question 37

If the costs (S and H) and demands (D) are the same, which of the following is not true with regard to the EPQ model as compared to the EOQ model?

A) The EPQ model produces a lower total annual cost.
B) The maximum inventory level is lower under the EPQ model than under the EOQ model.
C) Both models use the same formula to compute annual ordering cost.
D) The inventory depletion rate is the same for both models.
E) Both models use the same formula to compute annual holding cost.

Question 38

What costs are considered in the basic EOQ model?

A) annual ordering costs + annual holding costs
B) annual purchasing costs + annual holding costs
C) annual ordering costs + annual holding costs + annual shortage costs
D) annual purchasing costs + annual ordering costs + annual holding costs + annual shortage costs
E) ordering costs per order + annual holding costs

Question 39

If the EOQ is ordered, which of the following represents the total annual cost of ordering and holding?

A)
B)
C)
D)
E)

Question 40

All of the following affect holding costs except:

A) storage costs
B) obsolescence cost
C) damage cost
D) setup cost
E) insurance cost

Question 41

What are two logical ways in which to base the time between orders in a periodic review system?

A) replenishment lead time or EOQ calculations
B) replenishment lead time or bottleneck cycle time
C) convenience or replenishment lead time
D) convenience or EOQ calculations
E) convenience or bottleneck cycle time

Question 42

How can the EPQ model be economically reconciled with just-in-time (JIT) production?

A) Reduce annual demand (D).
B) Increase annual holding cost per unit (H).
C) Decrease ordering cost (S).
D) Increase annual holding cost per unit (H) and Decrease ordering cost (S).
E) The two cannot be reconciled.

Question 43

Under a periodic review system, enough inventory must be carried to protect against stockout for the ___________.

A) replenishment lead time
B) review period
C) replenishment lead time plus the review period
D) bottleneck cycle time
E) bottleneck cycle time plus the replenishment lead time

Question 44

Consider a periodic review inventory system with a lead time of two weeks and a review period of seven weeks. If the standard deviation of weekly demand is 200 and the desired cycle-service level is 86%, what should the safety stock equal?

A) 305
B) 516
C) 600
D) 648
E) 1944

Question 45

What costs are considered in the quantity discount model?

A) annual ordering costs + annual holding costs
B) annual purchasing costs + annual holding costs + annual ordering costs
C) annual ordering costs + annual holding costs + annual shortage costs d. annual purchasing costs + annual ordering costs + annual shortage costs e. ordering costs per order + annual holding costs

Question 46

What implies that about 20% of the inventory items will account for about 80% of the inventory value?

A) Little's law
B) Friedman's law
C) Pablo's proposition
D) Keyne's law
E) Pareto's law

Question 47

If the costs (S and H) and demands (D) are the same, which of the following is not true with regard to the EPQ model as compared to the EOQ model?

A) The EPQ model produces a lower total annual cost.
B) The maximum inventory level is lower under the EPQ model than under the EOQ model.
C) The two models use different formulas to compute annual ordering cost.
D) The inventory depletion rate is the same for both models.
E) The two models use different formulas to compute annual holding cost.

Question 48

In a periodic review system, if you are basing your time between orders on the EOQ, what should be its length in weeks?

A) EOQ / 52
B) EOQ / average weekly demand
C) average weekly demand / EOQ
D) 52 / EOQ
E) (EOQ)(average weekly demand)

Question 49

Consider a periodic review system. The target inventory level is 1000 units. It is time to review the item, and the on-hand inventory level is 200 units. How many units should be ordered?

A) 800
B) 1000
C) 1200
D) the EOQ amount
E) the safety stock amount

Question 50

What are the two major decisions to be made when using the periodic review system?

A) the time between orders and the target inventory level
B) the time between orders and the on-hand inventory
C) the target inventory level and the on-hand inventory
D) the time between orders and the order quantity
E) the target inventory level and the order quantity

Question 51

What does TBO stand for?

A) time-based optimization
B) target-based ordering
C) target-based optimization
D) time-based ordering
E) time between orders

Question 52

If the costs (S and H) and demands (D) are the same, which of the following is not true with regard to the EPQ model as compared to the EOQ model?

A) The EPQ model produces a lower total annual cost.
B) The maximum inventory level is lower under the EPQ model than under the EOQ model.
C) Both models use the same formula to compute annual ordering cost.
D) The inventory depletion rate is not the same for both models.
E) The two models use different formulas to compute annual holding cost.

Question 53

Which of the following statements is not true?

A) A two-bin system allows a firm to not have to keep perpetual inventory records.
B) Using perpetual inventory records results in different order quantities than using a two-bin system.
C) In a two-bin system, units in the second bin are not used until the first bin is empty.
D) In a two-bin system, the size of the second bin should equal the demand during replenishment lead time.
E) Perpetual inventory records are appropriate when using the EPQ model.

Question 54

A (an) _________________ inventory record provides an up-to-date inventory balance by recording all inventory transactions as they happen.

A) infinite
B) everlasting
C) constant
D) permanent
E) perpetual

Question 55

The formula for calculating safety stock when an estimate of demand during lead time and its standard deviation are known is?

A) SS = lead time * standard deviation
B) SS = lead time * z
C) SS = z* standard deviation
D) SS = z*σ_dl
E) SS = σ_dl* mean

Question 56

Which of the following is used in determining the order quantity in the periodic review system?

A) reorder point
B) critical ratio
C) target inventory level
D) EOQ
E) EPQ

Question 57

In a two-bin system, what does the quantity in the second bin represent?

A) the EOQ
B) the EPQ
C) demand during replenishment lead time
D) the quantity in the first bin
E) safety stock

Question 58

Consider a periodic review system with a lead time of two weeks and a review period of seven weeks. If the average demand per week is 1000 units and 300 units of safety stock are held, what should the target inventory level be?

A) 7300
B) 1300
C) 9000
D) 9300
E) 3300

Question 59

_____________________ is the probability that demand during lead time will not exceed on-hand inventory.

A) EOQ service level
B) Fill rate
C) Stockout risk
D) Order-cycle service level
E) Lead time service level

Question 60

If the costs (S and H) and demands (D) are the same, which of the following is true with regard to the EPQ model as compared to the EOQ model?

A) The lot size under the EPQ model is bigger than under the EOQ model.
B) The maximum inventory level is higher under the EPQ model than under the EOQ model.
C) The two models use different formulas to compute annual ordering cost.
D) The inventory depletion rate is not the same for both models.
E) Both models use the same formula to compute annual holding cost.

Question 61

Anticipation inventory is also called cycle stock.

Question 62

The inventory objective of customer service is measured by any of the following except _______________.

A) weeks of supply
B) percentage of dollar volume shipped on schedule
C) idle time due to component and material shortages
D) percentage of orders shipped on schedule
E) percentage of line items shipped on schedule

Question 63

Consider the basic EOQ model. If annual demand doubles, what happens to the total annual setup and holding cost?

A) It doubles.
B) It increases by 41.42%.
C) It remains the same.
D) The impact depends upon the value of the setup cost.
E) It quadruples (increases by 400%).

Question 64

A long production run implies a large setup cost per unit.

Question 65

A computer company has annual demand of 20,000. They want to determine EOQ for circuit boards which have an annual holding cost (H) of $10/unit, and an ordering cost (S) of $75. The purchasing lead time is 5 days. What is the TC and reorder point ( R) ?

A) 300 units, $3,000
B) 400 units, $5,477
C) 200 units, $2,000
D) 350 units, $5, 277
E) 400 units, $5,350

Question 66

When order quantities are higher, average transportation inventory is higher.

Question 67

Suppose that a plant manager uses economic batch sizes for production of a product. Suppose further that the setup cost is $50 per batch, the holding cost per unit per year is $10, the annual demand is 30,000 units, the firm operates (and experiences demand) 300 days per year, and the production rate per day is 1000 units. What will be the maximum inventory level that this product ever reaches?

A) 577
B) 30
C) 519
D) 27,000
E) 58

Question 68

Which of the following is not an identified reason why manufacturing firms do not use optimal EOQ order quantities?

A) do not have known uniform demand
B) some suppliers have a minimum order quantity
C) how the material is shipped
D) what the sales price is
E) insufficient storage space

Question 69

The technique of fixed-order quantity involves a company:

A) ordering exactly what is needed.
B) specifying the number of units to order whenever an order is placed.
C) placing a replenishment order whenever the on-hand inventory level falls below a minimum level.
D) determining the order quantity using the total demand for the item in the next n months.
E) ordering a quantity that will maintain the inventory at a predetermined maximum level.

Question 70

Firms that "chase" demand by hiring more workers have less need for anticipation inventory.

Question 71

What is the formula for calculating the average transportation inventory (ATI)?

A) ATI = tD / 365/2
B) ATI = tU / 365
C) ATI = tD / 180x2
D) ATI = txD + 365
E) ATI = tD / 365

Question 72

Which of the following is not one of the six ways to use inventory?

A) seasonal inventory
B) JIT inventory
C) pipeline inventory
D) hedge inventory
E) MRO inventory

Question 73

Which of the following statements is true?

A) Periodic counting and cycle counting generally both count every item in stock.
B) Periodic counting and cycle counting generally both do not count every item in stock.
C) Periodic counting generally counts every item in stock, whereas annually cycle counting generally does not daily.
D) Cycle counting generally counts every item in stock, whereas periodic counting generally does not.
E) Periodic counting generally occurs more frequently than cycle counting.

Question 74

Mary's Flower Boutique needs to ship finished goods from its manufacturing facility to its distribution warehouse. Annual demand for the Flower Boutique is 2000 flowers. Flower Boutique can ship the flowers via regular parcel service (3 days transit time), premium parcel service (1 day transit time), or via public carrier (5 days transit time). What is the average annual transportation inventory for each alternative?

A) 19.7, 6.6, 32.9
B) 20, 7, 50
C) 1, 15, 30
D) 25, 46, 99
E) 20, 6.6, 47.0

Question 75

ABC inventory assumes that a company's inventory is ____ equal and _______________ the same level of _________.

A) fully, does demand approximately, costs
B) counted, requires control for, profit
C) not, does not need, control
D) not, does not need, ordering
E) not, does not need, sales

Question 76

The ranking in ABC inventory analysis is based on what?

A) annual dollar usage
B) annual demand in units
C) alphabetical order
D) unit price
E) item number

Question 77

How can both the JIT and EOQ inventory theories effectively be reconciled?

A) They can't. A firm must choose either one or the other.
B) by using MRP
C) by considering the setup cost as a variable instead of a parameter
D) by applying Kanban cards to the EOQ system
E) by assuming a finite production rate

Question 78

World-class companies are known for having zero WIP inventory in their facilities.

Question 79

When is the basic EOQ model a special case of the EPQ model?

A) The demand per day approaches the demand per year.
B) The production rate per day approaches 0.
C) The production rate per day approaches infinity.
D) The back order cost approaches infinity.
E) d/p = 1.

Question 80

What is the formula for calculating the maximum inventory level?

A) Imax = H(1-d/p)
B) Imax = Q(1-d/p)
C) Imin = Q(1-s/p)
D) Imax = Q(1-d/s)
E) Imin = Q(1-d/h)