Deck 12: Managing Inventory

Question 1

Work-in-process inventory is devoted to maintenance,repair,and operating materials.

Answer 1

False

Question 2

ABC analysis classifies inventoried items into three groups,usually based on annual units or quantities used.

Answer 2

False

Question 3

What are the four functions of inventory?

Answer 3

(1)to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand; (2)to decouple various parts of the production process; (3)to take advantage of quantity discounts;and (4)to hedge against inflation

Question 4

Which item to order and with which supplier the order should be placed are the two fundamental issues in inventory management.

Question 5

Which of the following would NOT generally be a motive for a firm to hold inventories?

A)to decouple various parts of the production process
B)to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand
C)to take advantage of quantity discounts
D)to minimize holding costs
E)to hedge against inflation

Question 6

Amazon's original concept of operating without inventory has given way to a model in which Amazon is a world-class leader in ________.

Question 7

Which of the following statements regarding Amazon.com is FALSE?

A)The company was opened by Jeff Bezos in 1995.
B)The company was founded as,and still is,a "virtual" retailer with no inventory.
C)The company is now a world-class leader in warehouse automation and management.
D)The company uses both United Parcel Service and the U.S.Postal Service as shippers.
E)Amazon obtains its competitive advantage through inventory management.

Question 8

Cycle counting is an inventory control technique exclusively used for cyclical items.

Question 9

Explain what "decoupling" means in the context of inventory management.

Question 10

In ABC analysis,"A" items are the most tightly controlled.

Question 11

Which of the following is a function of inventory?

A)to decouple various parts of the production process
B)to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand
C)to take advantage of quantity discounts
D)to hedge against inflation
E)All of the above are functions of inventory.

Question 12

Identify the four types of inventory.

Question 13

ABC analysis is based on the presumption that carefully controlling all items is necessary to produce important inventory savings.

Question 14

What is MRO an acronym for? What is the function of MRO inventories?

Question 15

Which of the following is NOT one of the four main types of inventory?

A)raw material inventory
B)work-in-process inventory
C)maintenance/repair/operating supply inventory
D)safety stock inventory
E)finished-goods inventory

Question 16

According to the global company profile,Amazon.com's advantage in inventory management comes from its almost fanatical use of economic order quantity and safety stock calculations.

Question 17

One function of inventory is to take advantage of quantity discounts.

Question 18

Inventory that separates various parts of the production process performs a(n)________ function.

Question 19

A major challenge in inventory management is to maintain a balance between inventory investment and customer service.

Question 20

________ inventory is material that is usually purchased,but has yet to enter the manufacturing process.

Question 21

________ is a method for dividing on-hand inventory into three classifications based on annual dollar volume.

Question 22

Define shrinkage.Identify three or more examples of shrinkage.

Question 23

The demand for automobiles would be considered as independent demand.

Question 24

Identify three techniques to control service inventories.

Question 25

What is cycle counting?

Question 26

Describe ABC inventory analysis in one sentence.Identify three policies that may be based upon the results of an ABC analysis.

Question 27

Your company has compiled the following data on the small set of products that comprise the specialty repair parts division.Perform ABC analysis on the data.Which products do you suggest the firm keep the tightest control over? Explain.

Question 28

One advantage of cycle counting is that it maintains accurate inventory records.

Question 29

Cycle counting:

A)is a process by which inventory records are verified once a year.
B)eliminates annual inventory adjustments.
C)provides a measure of inventory turnover.
D)assumes that all inventory records must be verified with the same frequency.
E)assumes that the most frequently used items must be counted more frequently.

Question 30

Which of the following statements about ABC analysis is FALSE?

A)ABC analysis is based on the presumption that controlling the few most important items produces the vast majority of inventory savings.
B)In ABC analysis,"A" items should have tighter physical inventory control than "B" or "C" items have.
C)In ABC analysis,forecasting methods for "C" items may be less sophisticated than for "A" items.
D)ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.
E)Criteria other than annual dollar volume,such as high holding cost or delivery problems,can determine item classification in ABC analysis.

Question 31

Insurance and taxes on inventory are part of the costs known as setup or ordering costs.

Question 32

Among the advantages of cycle counting is that it:

A)makes the annual physical inventory more acceptable to management.
B)does not require the detailed records necessary when annual physical inventory is used.
C)does not require highly trained people.
D)allows more rapid identification of errors and consequent remedial action than is possible with annual physical inventory.
E)does not need to be performed for less expensive items.

Question 33

Which of the following statements regarding control of service inventories is TRUE?

A)Service inventory is a fictional concept,because services are intangible.
B)Service inventory needs no safety stock,because there's no such thing as a service stockout.
C)Effective control of all goods leaving the facility is one applicable technique.
D)Service inventory has carrying costs but no setup costs.
E)Good personnel selection,training,and discipline are easy.

Question 34

________ is a continuing reconciliation of inventory with inventory records.

Question 35

Retail inventory that is unaccounted for between receipt and time of sale is known as shrinkage.

Question 36

All EXCEPT which of the following statements about ABC analysis are true?

A)In ABC analysis,inventory may be categorized by measures other than dollar volume.
B)ABC analysis categorizes on-hand inventory into three groups based on annual dollar volume.
C)ABC analysis is an application of the Pareto principle.
D)ABC analysis suggests that all items require the same high degree of control.
E)ABC analysis suggests that there are the critical few and the trivial many inventory items.

Question 37

Perform an ABC analysis on the following set of products.

Question 38

ABC analysis divides on-hand inventory into three classes,generally based upon which of the following?

A)item quality
B)unit price
C)the number of units on hand
D)annual demand
E)annual dollar volume

Question 39

In cycle counting,the frequency of item counting and stock verification usually varies from item to item depending upon the item's classification.

Question 40

ABC analysis is based upon the principle that:

A)all items in inventory must be monitored very closely.
B)there are usually a few critical items,and many items that are less critical.
C)an item is critical if its usage is high.
D)more time should be spent on class "C" items because there are many more of them.
E)as with grade distributions in many MBA courses,there should be more medium-level "B" items than either "A" or "C" items.

Question 41

The EOQ model is best suited for items whose demand is dependent on other products.

Question 42

In the simple EOQ model,if the carrying cost were to double,the EOQ would also double.

Question 43

In the simple EOQ model,if annual demand were to increase,the EOQ would increase proportionately.

Question 44

Identify the typical components that constitute inventory holding or carrying costs.

Question 45

At the economic order quantity,holding costs are equal to product costs.

Question 46

Which of the following is an element of inventory holding costs?

A)housing costs
B)material handling costs
C)investment costs
D)pilferage,scrap,and obsolescence
E)All of the above are elements of inventory holding costs.

Question 47

In the production order quantity (POQ)model,inventory does not arrive in a single moment but flows in at a steady rate,resulting in a larger production/order quantity than in an otherwise identical EOQ problem.

Question 48

Several inventory models assume "independent demand." Explain what that term means and why the assumption is important.

Question 49

If setup costs are reduced by substantial reductions in setup time,the production order quantity is also reduced.

Question 50

Which of the following is NOT an assumption of the economic order quantity model shown below? Q* =

A)Demand is known,constant,and independent.
B)Lead time is known and constant.
C)Quantity discounts are not possible.
D)Production and use can occur simultaneously.
E)The only variable costs are setup cost and holding (or carrying)cost.

Question 51

Identify the typical cost components that constitute ordering costs in inventory systems.

Question 52

In the quantity discount model,the cost of acquiring goods (product cost)is not a factor in determining lot size.

Question 53

If the actual order quantity is the economic order quantity in a problem that meets the assumptions of the economic order quantity model shown below,the average amount of inventory on hand: Q* =

A)is smaller than the holding cost per unit.
B)is zero.
C)is one-half of the economic order quantity.
D)is affected by the amount of product cost.
E)goes down if the holding cost per unit goes down.

Question 54

Which category of inventory holding costs has a much higher percentage than average for rapid-change industries such as PCs and cell phones?

A)housing costs
B)material handling costs
C)labor cost
D)investment costs
E)pilferage,scrap,and obsolescence

Question 55

Most inventory models attempt to minimize:

A)the likelihood of a stockout.
B)the number of items ordered.
C)total inventory-based costs.
D)the number of orders placed.
E)the safety stock.

Question 56

What is the primary purpose of the basic economic order quantity model shown below? Q* =

A)to calculate the reorder point,so that replenishments take place at the proper time
B)to minimize the sum of carrying cost and holding cost
C)to maximize the customer service level
D)to minimize the sum of setup cost and holding cost
E)to calculate the optimum safety stock

Question 57

The reorder point is the inventory level at which action is taken to replenish the stocked item.

Question 58

A certain type of computer costs $1,000,and the annual holding cost is 25% of the value of the item.Annual demand is 10,000 units,and the order cost is $150 per order.What is the approximate economic order quantity?

A)16
B)70
C)110
D)183
E)600

Question 59

The two most basic inventory questions answered by the typical inventory model are:

A)timing of orders and cost of orders.
B)order quantity and cost of orders.
C)timing of orders and order quantity.
D)order quantity and service level.
E)ordering cost and carrying cost.

Question 60

In the quantity discount model,it is possible to have a cost-minimizing solution where annual ordering costs do not equal annual carrying costs.

Question 61

An inventory decision rule states,"When the inventory level goes down to 14 gearboxes,100 gearboxes will be ordered." Which of the following statements is TRUE?

A)One hundred is the reorder point,and 14 is the order quantity.
B)Fourteen is the reorder point,and 100 is the order quantity.
C)The number 100 is a function of demand during lead time.
D)Fourteen is the safety stock,and 100 is the reorder point.
E)None of the above is true.

Question 62

A product whose EOQ is 40 units experiences a decrease in ordering cost from $90 per order to $10 per order.The revised EOQ is:

A)three times as large.
B)one-third as large.
C)nine times as large.
D)one-ninth as large.
E)cannot be determined

Question 63

A product has a demand of 4000 units per year.Ordering cost is $20,and holding cost is $4 per unit per year.The cost-minimizing solution for this product is to order:

A)all 4000 units at one time.
B)200 units per order.
C)every 20 days.
D)10 times per year.
E)none of the above

Question 64

Which of the following statements about the basic EOQ model is TRUE?

A)If the ordering cost were to double,the EOQ would rise.
B)If annual demand were to double,the EOQ would increase.
C)If the carrying cost were to increase,the EOQ would fall.
D)If annual demand were to double,the number of orders per year would increase.
E)All of the above statements are true.

Question 65

When quantity discounts are allowed,the cost-minimizing order quantity:

A)is always an EOQ quantity.
B)minimizes the sum of holding and ordering costs.
C)minimizes the unit purchase price.
D)may be a quantity below that at which one qualifies for that price.
E)minimizes the sum of holding,ordering,and product costs.

Question 66

The assumptions of the production order quantity model are met in a situation where annual demand is 3650 units,setup cost is $50,holding cost is $12 per unit per year,the daily demand rate is 10 and the daily production rate is 100.What is the production order quantity for this problem?

A)139
B)174
C)184
D)365
E)548

Question 67

In the basic EOQ model,if D = 6000 per year,S = $100,and holding cost = $5 per unit per month,what is the economic order quantity?

A)24
B)100
C)141
D)490
E)600

Question 68

A product whose EOQ is 400 units experiences a 50% increase in demand.The new EOQ is:

A)unchanged.
B)increased by less than 50%.
C)increased by 50%.
D)increased by more than 50%.
E)cannot be determined

Question 69

A product has a demand of 4000 units per year.Ordering cost is $20,and holding cost is $4 per unit per year.The EOQ model is appropriate.The cost-minimizing solution for this product will cost ________ per year in total annual inventory (holding and setup)costs.

A)$400
B)$800
C)$1200
D)Zero;this is a class C item.
E)Cannot be determined because the unit price is not known.

Question 70

For a certain item,the cost-minimizing order quantity obtained with the basic EOQ model is 200 units,and the total annual inventory (carrying and setup)cost is $600.What is the inventory carrying cost per unit per year for this item?

A)$1.50
B)$2.00
C)$3.00
D)$150.00
E)not enough data to determine

Question 71

A production order quantity problem has a daily demand rate = 10 and a daily production rate = 50.The production order quantity for this problem is approximately 612 units.What is the average inventory for this problem?

A)61
B)245
C)300
D)306
E)490

Question 72

Which of the following statements regarding the production order quantity model is TRUE?

A)It applies only to items produced in the firm's own production departments.
B)It relaxes the assumption that all the order quantity is received at one time.
C)It relaxes the assumption that the demand rate is constant.
D)It minimizes the total production costs.
E)It minimizes inventory.

Question 73

Which of these statements about the production order quantity model is FALSE?

A)The production order quantity model is appropriate when the assumptions of the basic EOQ model are met,except that receipt is noninstantaneous.
B)Because receipt is noninstantaneous,some units are used immediately and not stored in inventory.
C)Average inventory is less than one-half of the production order quantity.
D)All else equal,the smaller the ratio of demand rate to production rate,the larger is the production order quantity.
E)None of the above is false.

Question 74

Which of the following statements regarding the reorder point is TRUE?

A)The reorder point is that quantity that triggers an action to restock an item.
B)There is a reorder point even if lead time and demand during lead time are constant.
C)The reorder point is larger than d × L if safety stock is present.
D)A shorter lead time implies a smaller reorder point.
E)All of the above are true.

Question 75

Which of the following statements about quantity discounts is FALSE?

A)The cost-minimizing solution may or may not be where annual holding costs equal annual ordering costs.
B)In inventory management,item cost becomes relevant to order quantity decisions when a quantity discount is available.
C)If carrying costs are expressed as a percentage of value,EOQ is larger at each lower price in the discount schedule.
D)The larger the annual demand,the less attractive a discount schedule will be.
E)The smaller the ordering cost,the less attractive a discount schedule will be.

Question 76

________ is the time between placement and receipt of an order.

Question 77

Which of the following statements about the basic EOQ model is FALSE?

A)If the setup cost were to decrease,the EOQ would fall.
B)If annual demand were to double,the number of orders per year would increase.
C)If the ordering cost were to increase,the EOQ would rise.
D)If annual demand were to double,the EOQ would also double.
E)All of the above statements are true.

Question 78

In the basic EOQ model,if the cost of placing an order doubles,and all other values remain constant,the EOQ will:

A)increase by about 41%.
B)increase by 100%.
C)increase by 200%.
D)increase,but more data is needed to say by how much.
E)either increase or decrease.

Question 79

In an economic order quantity problem,the total annual cost curve is at its ________ where annual holding costs equal annual setup costs.

Question 80

In the EOQ model,for a given level of demand,annual holding cost is larger as the order quantity is ________.