Deck 7: Inventory Management

Question 1

Relaxing the instantaneous replenishment assumption of the EOQ model results in the Economic Manufacturing Quantity model.

Answer 1

True

Question 2

When demand and lead time are constant,reorder point is the demand during lead time.

Answer 2

True

Question 3

When both the demand and lead time of a product are variable,firms keep a higher safety stock level when compared to variations in only the demand or only the lead time.

Answer 3

True

Question 4

The continuous review inventory system requires less safety stock compared to the periodic review inventory system.

Question 5

Inventory turnover ratio shows how many times a firm turns over its inventory in an accounting period.Faster turnovers are generally viewed as negative because it indicates instability in the firm's inventory level.

Question 6

Service parts sold to the repair shops are examples of dependent demand.

Question 7

The four broad categories of inventory are raw materials,work-in-process,subassemblies,and finished goods.

Question 8

In the Economic Manufacturing Quantity model,the annual consumption rate must be higher than the annual production rate.

Question 9

The total annual inventory cost is the sum of the annual purchase cost,the annual holding cost,the annual capacity cost,and the annual ordering cost.

Question 10

Pareto Analysis is an inventory model used to determine the optimal order size that minimizes total annual inventory costs.

Question 11

The optimal order quantity for the quantity discount model may exist at a price breakpoint.

Question 12

Dependent Demand must be forecasted based on market conditions.

Question 13

The (s,S)continuous review inventory system orders the same quantity Q when physical inventory reaches the reorder points.

Question 14

An RFID reader does not require direct line of sight to read the information stored in an RFID tag.

Question 15

The term Cycle Counting is synonymous with physically counting inventory.

Question 16

The ABC inventory control system categorizes inventory items into three groups,A,B,and C.A items are given highest priority,while C items have the lowest priority.Prioritization may be based on annual dollar usage,shelf life,or sales volume.

Question 17

The ABC inventory matrix shows an ABC inventory classification based on annual usage on the vertical axis and an ABC inventory classification based on physical inventory on the horizontal axis.

Question 18

Radio Frequency Identification (RFID)is considered an eventual replacement of bar code because of its ability to store huge amounts of information to differentiate goods at the item level.

Question 19

The periodic inventory review system reviews physical inventory at specific points in time.

Question 20

The EOQ,also known as the economic order quantity,is the order size where annual inventory holding costs equal annual ordering costs.

Question 21

Which of the following is a global RFID challenge?

A)Foreign firms are skeptical about sharing potentially confidential information with foreign businesses.
B)Globally, the RFID industry does not have its own UHF spectrum allocation.
C)UHF signals are reflected by metal and absorbed by water.
D)All of the above.
E)None of these.

Question 22

Which of the following cannot be considered as independent demand items?

A)wholesale and retail merchandise items
B)maintenance, repair, and operating supplies at a manufacturing company
C)maintenance, repair, and operating supplies at a service firm
D)raw material items that become part of the final product at a manufacturing firm
E)service industry items such as hospital supplies or office supplies for law firms

Question 23

The cost of a widget is $5,and the carrying rate is 40%; cost of processing an order is $25,annual demand is for 400 widgets,and supply and usage patterns are stable.What is the economic order quantity (EOQ)?

A)5
B)20
C)25
D)100
E)200

Question 24

Classify the following inventory items as either A,B,or C items according to the ABC analysis method:? $\begin{array}{|l|r|r|l|l|}\hline {\text { Item \# }} & {\text { Annual Sales }} & \text { Unit Cost } & \begin{array}{l}\text { Current } \\\text { Inventory } \\\text { Value } \$\end{array} & \text { Classification } \\\hline{ 1 } & 130 \text { units } & \$ 4.00 & & \\\hline 2 & 400 \text { units } & 15.30 & & \\\hline 3 & 25 \text { units } & 17.00 & & \\\hline 4 & 1320 \text { units } & 1.25 & & \\\hline 5 & 90 \text { units } & 2.10 & & \\\hline\end{array}$

A)item 1 (B), item 2 (A), item 3 (A), item 4 (C), item 5 (C)
B)item 1 (C), item 2 (B), item 3 (C), item 4 (A), item 5 (C)
C)item 1 (A), item 2 (B), item 3 (C), item 4 (A), item 5 (B)
D)item 1 (B), item 2 (C), item 3 (B), item 4 (C), item 5 (A)
E)item 1 (C), item 2 (A), item 3 (C), item 4 (B), item 5 (C)

Question 25

Dependent demand and independent demand items differ in that
I)for any product,all components are dependent-demand items
II)the need for independent-demand items is forecast
III)the need for dependent-demand items is calculated

A)I only
B)I & II only
C)I & III only
D)II & III only
E)I, II & III

Question 26

Which of the following would most likely be considered a dependent demand item?

A)Bicycle tires used to assemble a bicycle
B)Television (TV)
C)Couch
D)Lawn Mower

Question 27

____,such as lubricants for machines,are used in the production process,but do not become parts of the final products.

A)Raw materials
B)Work-in-process
C)Maintenance, repair and operating supplies
D)Finished goods
E)Cycle stock

Question 28

ABC Inventory Matrix
Use the graph below to answer the question(s).
In the ABC Inventory Matrix,inventory in area Y suggests

A)under-stocked A and B items.
B)under-stocked B and C items.
C)overstocked A and B items.
D)over-stocked B and C items.
E)inventory matches sales.

Question 29

Companies hold a supply of inventory for all of the following reasons EXCEPT:

A)meet variation in product demand
B)increase production change/setup costs
C)allow production scheduling flexibility
D)purchase in bulk to take advantage of quantity discounts
E)maintain independence of operations (Decoupling)

Question 30

The primary purpose of the basic economic order quantity model is

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 31

ABC Inventory Matrix
Use the graph below to answer the question(s).
In the ABC Inventory Matrix,inventory in area Z suggests

A)under-stocked A and B items.
B)under-stocked B and C items.
C)overstocked A and B items.
D)over-stocked B and C items.
E)inventory matches sales.

Question 32

Which of the following is a disadvantage of excessive inventory?

A)it creates an unnecessary waste of scarce resources.
B)It leads to higher inventory ordering cost.
C)It leads to lower average inventory.
D)It eliminates cycle stock.
E)It reduces the need to conduct cycle count.

Question 33

If an item is ordered at its economic order quantity,the annual carrying cost should be:

A)slightly less than the annual ordering cost.
B)equal to the annual ordering cost.
C)twice the annual purchase price.
D)the square root of the annual ordering cost.
E)cannot be determined because there is insufficient information provided.

Question 34

Which of the following is not an assumption of the economic order quantity model?

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 35

Which of the following is not an example of an ordering cost for products purchased from a supplier?

A)the cost of transmitting the order
B)the cost of receiving the product
C)the cost associated with processing the invoice
D)the cost of pilferage while in storage
E)the cost of clerical staff for preparing the purchase

Question 36

The EOQ model with quantity discounts attempts to determine

A)what is the lowest purchasing price.
B)whether to use fixed-quantity or fixed period order policy.
C)how many units should be ordered.
D)what is the shortest lead time.
E)what is the lowest amount of inventory necessary to satisfy a certain service level.

Question 37

What inventory factor may be omitted from the basic EOQ derivation because it is a constant?

A)Annual order-processing cost
B)Annual purchase cost of goods
C)Annual capital cost
D)Annual setup costs
E)all of these

Question 38

If your company had an annual purchase cost of items equal to $2,000,000,an annual holding cost of $150,000 and an annual ordering cost of $750,000 this scenario would reveal that:

A)Your fixed lot size was lower than the EOQ
B)Your fixed lot size was equal to the EOQ
C)Your fixed lot size was higher than the EOQ
D)Nothing because there is insufficient information to discern where the EOQ would be.

Question 39

Use this information below to calculate the optimal order quantity:Annual demand for backpacks is 43,000 unitsThe cost to place an order is $220The per unit cost of the item is $60.00The annual holding rate is 37.5%Choose the closest answer.

A)920 units
B)250 units
C)710 units
D)830 units

Question 40

Which one of the following statements regarding the economic order quantity is true?

A)The EOQ model combines several different item orders to the same supplier.
B)If an order quantity is larger than the EOQ, the annual holding cost exceeds the annual ordering cost.
C)The EOQ model assumes a variable demand pattern.
D)When the interest rate drops, both the holding cost and the EOQ decreases.
E)EOQ is used to determine the optimum shipping quantity.

Question 41

Figure 7-1
Use the graph below to answer the question(s).
Which of the following is TRUE in relation to Figure 7-1?

A)Curve J represents the annual ordering cost, and curve K represents the annual holding cost.
B)A lot size of G has an annual total cost of about C.
C)At lot size H both holding costs and ordering costs exceed the annual total cost.
D)The EOQ is most likely lot size G, and curve L is the annual ordering cost curve.

Question 42

List four assumptions of the EOQ model.

Question 43

The UNLV Bookstore sells a unique calculator to college students.The demand for this calculator has a normal distribution with an average daily demand of 20 units and a standard deviation of 4 units per day.The lead time for this calculator is very stable at 9 days.Compute the statistical reorder point that results in a 95 percent in-stock probability (Z = 1.65).

A)19.8 units
B)80 units
C)180 units
D)199.8 units
E)720 units

Question 44

Use the graph below to answer the questions that follow.
a.Identify the Annual Holding Cost curve. Provide a brief description of what the Annual Holding Cost curve represents.
b.Identify the Annual Ordering Cost curve. Provide a brief description of what the Annual Ordering Cost curve represents.
c.Identify the Annual Total Cost Curve. Provide a brief description of what the Annual Total Cost curve represents.
d.Identify the Economic Order Quantity. Provide a brief description of what the Economic Order Quantity represents.

Question 45

Figure 7-1
Use the graph below to answer the question(s).
Which of the following is true under the Periodic Review System:

A)a lower level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon
B)a higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon
C)it is more expensive to administer
D)The only uncertainty is the magnitude of demand during the delivery lead time
E)there are no discrepancies between physical inventory and the stock record

Question 46

When demand and delivery lead time are known and constant,reorder point is the ____.

A)demand during lead time
B)safety stock
C)sum of demand during lead time and safety stock
D)economic order quantity
E)average inventory

Question 47

Name and briefly describe the four basic types of inventory.

Question 48

Describe the ABC inventory matrix,and how is it used to manage inventory.

Question 49

What is Radio Frequency Identification (RFID)? Provide four examples or scenarios of how RFID can be used to aid in supply chain management.

Question 50

When demand and delivery lead time are known and constant,and demand is eight per day,and purchase lead time is four days,the reorder point is:

A)3.
B)8.
C)32.
D)35.
E)56.

Question 51

Briefly describe the differences between dependent and independent demand.Provide examples of dependent and independent demand items for each of the following industries: automotive industry,personal computer industry,bicycle industry

Question 52

The manager at Robert's Cigars wants to determine the lowest cost order policy given the following purchase discounts offered: cigar costs are $4 each for orders less than 500; $3.50 each for orders of 500 - 1000; and $3.25 each for orders greater than 1000.The order cost = $75,annual demand forecast = 5500 cigars,inventory carrying cost = 30% per year.