Deck 18: Inventory Management

Question 1

Inventory can take the form of tools and equipment.

Answer 1

True

Question 2

Shortage costs are easier to determine than carrying costs or ordering costs.

Answer 2

False

Question 3

Buffer inventories provide independence between different stages of the production process.

Answer 3

True

Question 4

Seasonal inventory allows a firm to maintain a smooth production flow throughout the year.

Question 5

Continuous inventory systems are primarily intended for lower cost items because they are easier to use,and require fewer resources.

Question 6

The objective of inventory management is to keep enough inventory on-hand to satisfy customer demand without regard to cost effectiveness.

Question 7

Product deterioration,spoilage,breakage,and obsolescence are examples of shortage costs.

Question 8

Continuous inventory systems are also referred to as a fixed-order-quantity system.

Question 9

The three basic costs associated with inventory are holding costs,ordering costs and shortage costs.

Question 10

Hedging involves buying larger amounts of inventory in anticipation of future price increases.

Question 11

Carrying costs are more difficult to determine than ordering or shortage costs.

Question 12

Finished product is an example of a dependent demand item.

Question 13

Carry costs and ordering costs are inversely related.

Question 14

The ability to effectively satisfy internal or external demand in a timely,efficient manner is referred to as the level of customer service.

Question 15

Dependent demand items consist of component parts or materials used in the production process to produce a final product.

Question 16

Inventory management is concerned with how much to order and when to order.

Question 17

The conventional approach to inventory management is to maintain a level of inventory that reflects a compromise between inventory cost and customer service.

Question 18

Dependent demand is determined by external market conditions.

Question 19

As the level of inventory increases to provide better customer service,quality-related customer service costs decrease.

Question 20

Dependent demand items are typically products for use by the final customer.

Question 21

The economic order quantity occurs when the annual carrying cost is equal to the annual ordering cost.

Question 22

The economic order quantity (EOQ)model determines the optimal order size that minimizes total annual inventory costs.

Question 23

For a given annual demand,total annual ordering cost is independent of order size.

Question 24

Periodic inventory systems initiate a new order when the level of inventory falls to the reorder point.

Question 25

The order quantity for a periodic inventory system remains constant.

Question 26

The periodic inventory system is often preferred for high quantity,low value items.

Question 27

The average inventory can be calculated by dividing the annual demand,D,by 2.

Question 28

The order cycle is the time between receipts of orders in an inventory cycle.

Question 29

With the economic order quantity (EOQ)model,increasing the order quantity reduces inventory carrying cost.

Question 30

In ABC analysis,each class of inventory requires different levels of inventory monitoring and control.

Question 31

The time between orders is variable and the order quantity is constant in the periodic inventory system.

Question 32

The reorder point is the level of inventory that prompts a new order to be placed in a continuous inventory system.

Question 33

The production quantity model,a variation of the basic EOQ model,assumes non-instantaneous replenishment.

Question 34

The ABC classification system is a method for classifying inventory based on the percentage of total value and the percentage of total quantity.

Question 35

The EOQ model determines the optimal order size that minimizes the sum of carrying costs and shortage costs.

Question 36

With the economic order quantity (EOQ)model,the number of orders increases as the order size decreases.

Question 37

Class A items in the ABC classification system require less monitoring and control than Class C items.

Question 38

The number of orders can be calculated by dividing the daily demand rate,d,by the order quantity,

Question 39

Continuous inventory systems often incorporate information technology to improve the speed and accuracy of data entry and retrieval.

Question 40

The quantity discount model evaluates whether using an order size that qualifies for a price discount is always less cost effective than using the economic order quantity.

Question 41

Inventory costs _________________ when higher levels of inventory are needed to improve customer service.

A)decrease
B)stay the same
C)increase
D)cannot be estimated

Question 42

With the quantity discount model,the basic EOQ total cost formula is modified to include a term,PD,calculated by taking the purchase price multiplied by annual demand.

Question 43

________________ is additional inventory kept at various stages of the production process to provide independence between stages to avoid work stoppages.

A)Safety stock
B)Buffer stock
C)Finished stock
D)None of these answer choices is correct.

Question 44

Maintaining a desired service level influences the level of safety stock.

Question 45

Which of the following is not considered a form of inventory?

A)items being transported
B)tools and equipment
C)purchased parts and supplies
D)backorders

Question 46

With the quantity discount model,the first price point examined is the one associated with the EOQ quantity calculated using the basic model.

Question 47

A continuous inventory system is also known as a

A)fixed-time period system
B)fixed-order quantity system
C)fixed-lead time system
D)fixed-amount system

Question 48

Drugstores are one example of a business using a periodic inventory system because of their dependence on vendor-managed inventory.

Question 49

A periodic inventory system is also known as a

A)fixed-time period system.
B)fixed-order quantity system.
C)fixed-lead time system.
D)fixed-amount system.

Question 50

The order quantity cannot be calculated for a periodic inventory system that experiences variable demand.

Question 51

Which of the following is not an example of inventory carried to satisfy independent demand?

A)spare parts
B)finished product
C)raw materials
D)All the answer choices are correct.

Question 52

Receiving,handling,and shipping costs are examples of

A)shortage costs.
B)carrying costs.
C)ordering costs.
D)None of these answer choices is correct.

Question 53

The _______________ classification system classifies inventory according to its dollar value to the firm.

A)periodic
B)continuous
C)ABC
D)EOQ

Question 54

A quantity discount is a price discount available if a predetermined number of units is ordered.

Question 55

In general,as the order size increases

A)ordering costs decrease and carrying costs increase.
B)ordering costs increase and carrying costs decrease.
C)both ordering and carrying costs increase.
D)both ordering and carrying costs decrease.

Question 56

________________ is additional inventory kept on hand to meet variations in product demand.

A)Safety stock
B)Buffer stock
C)Finished stock
D)None of these answer choices is correct.

Question 57

___________ demand items are used in the process of producing a final product.

A)Dependent
B)Independent
C)Seasonal
D)Cyclical

Question 58

When demand is uncertain,a safety stock is often added to the expected demand during lead time to prevent a stockout.

Question 59

A company may purchase larger amounts of inventory for all the following reasons except

A)to reduce inventory carrying costs.
B)to take advantage of quantity discounts.
C)as a hedge against future price increases.
D)to obtain lower prices purchasing in volume.

Question 60

A service level of 95% means there is a 0.95 probability

A)of a stockout.
B)that supply will exceed demand.
C)that demand will be met during the lead time.
D)None of these answer choices is correct.

Question 61

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate.The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00.If the restaurant orders the economic order quantity then the total annual inventory cost for napkins is

A)$62,500.
B)$5,000.
C)$2,500.
D)$1,250.

Question 62

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate.If the cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00,then the economic order quantity for napkins is

A)62,500 boxes.
B)10,000 boxes.
C)5,000 boxes.
D)2,500 boxes.

Question 63

What is the discount order quantity using a purchase price of $122?

A)100
B)115.47
C)200
D)500

Question 64

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

A)demand is known and constant
B)no shortages allowed
C)lead time is determined by quantity ordered
D)order quantity is received all at once

Question 65

Annual demand for a product is 40,000 units.The product is used at a constant rate over the 365 days the company is open every year.The annual holding cost for the product is estimated to be $2.50 per unit,and the cost of placing each order is $125.00.If the company orders according to the economic order quantity (EOQ)formula,then the time between orders (order cycle time)is

A)18.25 days.
B)24.33 days.
C)36.5 days.
D)73 days.

Question 66

What is the discount order quantity using a purchase price of $130?

A)100
B)115.47
C)200
D)500

Question 67

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate over the 365 days that it is open.The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00.If the restaurant orders the economic order quantity then the time between orders (order cycle)is

A)125 days.
B)75.3 days.
C)32.8 days.
D)29.2 days.

Question 68

Annual demand for a product is 40,000 units.The product is used at a constant rate over the 365 days the company is open every year.The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00.If the company orders according to the economic order quantity (EOQ)formula then its total annual inventory cost for this product is
A)$100,000.

A)$50,000.
B)$5,000.
C)$2,500.

Question 69

The quantity discount model considers

A)purchase price.
B)carrying cost.
C)ordering cost.
D)All of these answer choices are correct.

Question 70

Annual demand for a product is 40,000 units.The product is used at a constant rate over the 365 days the company is open every year.The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00.If the company orders according to the economic order quantity (EOQ)formula then its optimal order size for this product is

A)2,000 units.
B)4,000 units.
C)20,000 units.
D)40,000 units.

Question 71

Annual demand for a product is 40,000 units.The product is used at a constant rate over the 365 days the company is open every year.The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00.If the company orders according to the economic order quantity (EOQ)formula,then its average inventory level for this product is

A)20,000 units.
B)10,000 units.
C)2,500 units.
D)1,000 units.

Question 72

What is the economic order quantity?

A)100
B)115.47
C)200
D)500

Question 73

Annual demand for a product is 40,000 units.The product is used at a constant rate over the 365 days the company is open every year.The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00.If the company orders according to the economic order quantity (EOQ)formula,then ________ orders are placed annually.

A)5
B)10
C)15
D)20

Question 74

From a supplier perspective,the purpose of a quantity discount is to get the customer to buy

A)more than the economic order quantity.
B)less than the economic order quantity.
C)the economic order quantity.
D)None of these answer choices is correct.

Question 75

What is the annual purchase cost using the economic order quantity?

A)$60,000
B)$61,000
C)$65,000
D)None of these answer choices is correct.

Question 76

What is the carrying cost using the economic order quantity?

A)$750
B)$866
C)$1,500
D)$3,750

Question 77

What is the optimal order quantity?

A)100
B)115.47
C)200
D)500

Question 78

What is the inventory ordering cost using the economic order quantity?

A)$200
B)$500
C)$866
D)$1,000

Question 79

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate.The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00.If the restaurant orders the economic order quantity each time an order is placed,then ______orders are placed during the year.

A)13
B)15
C)20
D)25

Question 80

The economic order quantity is most widely used for determining how much to order in

A)a periodic inventory system.
B)a continuous inventory system.
C)an on-demand inventory system.
D)None of these answer choices is correct.