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Questions and Answers
- 1.
The Economic Manufacturing Quantity (EMQ) model relaxes which assumption of the classical EOQ model?
- A.
Constant Demand
- B.
Instantaneous Replenishment
- C.
Constant Price
- D.
Zero Safety Stock
Correct Answer
B. Instantaneous ReplenishmentExplanation
The Economic Manufacturing Quantity (EMQ) model relaxes the assumption of instantaneous replenishment in the classical EOQ model. In the classical EOQ model, it is assumed that replenishment of inventory occurs instantaneously, meaning there is no time delay between placing an order and receiving the inventory. However, in reality, there is usually a lead time or delay between ordering and receiving inventory. The EMQ model takes this into account by considering the time required for manufacturing or processing the inventory, thus relaxing the assumption of instantaneous replenishment.Rate this question:
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- 2.
An RFID system consists of:
- A.
The code, band, writer, and reader
- B.
The header, manager, object, and serial number
- C.
The tag, reader, communication network, and software
- D.
The standards, the equipment, the software, and the printer
Correct Answer
C. The tag, reader, communication network, and softwareExplanation
An RFID system consists of the tag, reader, communication network, and software. The tag is the physical device that contains the unique identifier and is attached to the object being tracked. The reader is the device that sends and receives signals to communicate with the tag. The communication network is the infrastructure that allows the reader and tag to exchange data. Lastly, the software is the program that manages and processes the data collected from the tag and reader. Together, these components make up an RFID system.Rate this question:
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- 3.
When using the ABC Inventory Classification, A items typically account for about:
- A.
80% of the annual dollar usage
- B.
20% of the annual dollar usage
- C.
80% of the items
- D.
15% of the overstocked items
Correct Answer
A. 80% of the annual dollar usageExplanation
When using the ABC Inventory Classification, A items typically account for about 80% of the annual dollar usage. This means that these items are high-value and contribute significantly to the overall revenue generated by the inventory. By focusing on managing and optimizing the inventory of A items, businesses can effectively allocate their resources and ensure that the most valuable items are always available to meet customer demand.Rate this question:
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- 4.
Which of the following is not an assumption of the basic economic order quantity model?
- A.
Demand is known and constant
- B.
Replenishments take place at the proper time
- C.
Price is constant
- D.
Order lead time is known and constant
Correct Answer
B. Replenishments take place at the proper timeExplanation
The assumption that replenishments take place at the proper time is not a part of the basic economic order quantity model. The model assumes that demand is known and constant, price is constant, and order lead time is known and constant. However, the model does not make any assumptions about the timing of replenishments.Rate this question:
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- 5.
The categories of inventory are raw materials, work-in-process, finished goods and _______.
- A.
Anticipation inventories
- B.
In-transit inventories
- C.
Maintenance, repair and operating supplies
- D.
Operating Items
Correct Answer
C. Maintenance, repair and operating suppliesExplanation
The categories of inventory are typically classified as raw materials, work-in-process, finished goods, and maintenance, repair, and operating supplies. Maintenance, repair, and operating supplies refer to the materials and supplies necessary for the day-to-day operations and maintenance of a business. These can include items such as tools, cleaning supplies, office supplies, and other consumables needed to keep the business running smoothly.Rate this question:
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- 6.
Completed items ready for shipment are classified as:
- A.
Product demand inventories
- B.
Finished goods inventories
- C.
Work in completion inventories
- D.
MRO inventories
Correct Answer
B. Finished goods inventoriesExplanation
Finished goods inventories are items that have completed the production process and are ready for shipment to customers. These inventories represent the final products that a company has produced and are waiting to be sold. They are classified as finished goods because they have undergone all the necessary manufacturing processes and are in their final form. These inventories are important for companies to meet customer demand and fulfill orders in a timely manner.Rate this question:
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- 7.
Use of the periodic review system is characterized by:
- A.
Variable order quantities at constant time intervals.
- B.
Constant order quantities at constant time intervals
- C.
Variable order quantities at variable time intervals
- D.
Constant order quantities at variable time intervals
Correct Answer
A. Variable order quantities at constant time intervals.Explanation
The use of the periodic review system is characterized by variable order quantities at constant time intervals. This means that the quantity of items ordered can vary each time, but the time interval between orders remains constant. This system allows for flexibility in adjusting the order quantities based on demand fluctuations while maintaining a regular schedule for reviewing and replenishing inventory.Rate this question:
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- 8.
Which of the following is not a dependent demand item?
- A.
Hamburger buns at mcDonalds
- B.
Service Parts at an auto shop
- C.
Retail goods at a department store
- D.
Raw materials at a manufacturer
Correct Answer
C. Retail goods at a department storeExplanation
Retail goods at a department store are not a dependent demand item because they are not directly influenced by the demand for any other product. They are independent items that are sold to customers based on their own demand and preferences. In contrast, hamburger buns at McDonald's, service parts at an auto shop, and raw materials at a manufacturer are all dependent demand items because their demand is driven by the demand for the final product they are used in.Rate this question:
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- 9.
The two types of RFID tag are:
- A.
EPC and ISO
- B.
Active and passive.
- C.
Bar code and writeable
- D.
Line of sight and radio signal
Correct Answer
B. Active and passive.Explanation
The correct answer is "Active and passive". RFID tags can be classified into two types based on their power source and functionality. Active RFID tags have their own power source and can actively transmit signals to communicate with the reader. They have a longer read range and are suitable for tracking and monitoring objects in real-time. On the other hand, passive RFID tags do not have their own power source and rely on the energy emitted by the reader to power them. They have a shorter read range and are commonly used for inventory management and asset tracking.Rate this question:
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- 10.
The quantity discount model is used when
- A.
The purchase lead time varies.
- B.
The EOQ is discounted
- C.
The purchase price varies
- D.
Demand varies over time
Correct Answer
C. The purchase price variesExplanation
The quantity discount model is used when the purchase price varies. This model helps in determining the optimal order quantity by considering different price levels for different quantities purchased. It takes into account the cost savings that can be achieved by purchasing larger quantities at lower prices. By analyzing the price variations, businesses can make informed decisions on how much to order in order to minimize costs and maximize profits.Rate this question:
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- 11.
When using the continuous review system, stockouts can occur:
- A.
During the delivery lead time
- B.
Between review periods
- C.
Prior to the reorder period
- D.
At any time
Correct Answer
A. During the delivery lead timeExplanation
Stockouts can occur during the delivery lead time because the continuous review system relies on monitoring inventory levels and placing orders when stock reaches a predetermined reorder point. If the delivery lead time is longer than expected or there are delays in the supply chain, it is possible for stock to run out before the new order arrives, resulting in a stockout.Rate this question:
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- 12.
When General Motors purchases tires for their automobiles, this can be classified as:
- A.
Customer demand
- B.
Independent demand
- C.
Continuous demand
- D.
Dependent demand
Correct Answer
D. Dependent demandExplanation
Dependent demand refers to the demand for a component or part that is directly influenced by the demand for the final product. In this case, General Motors purchasing tires for their automobiles is an example of dependent demand because the demand for tires is dependent on the demand for automobiles. As the demand for automobiles increases, so does the demand for tires to be used in the manufacturing process.Rate this question:
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- 13.
If the EOQ assumptions hold, and if a firm orders the EOQ, the average inventory level over time should be
- A.
The square root of the EOQ.
- B.
Equal to the lead time quantity
- C.
Twice the EOQ
- D.
Half the EOQ
Correct Answer
D. Half the EOQExplanation
If the EOQ assumptions hold and a firm orders the EOQ, the average inventory level over time should be half the EOQ. This is because the EOQ model assumes that demand is constant and known, there are no quantity discounts, and the ordering and holding costs are constant. In this case, the firm orders the EOQ, which is the optimal order quantity that minimizes the total cost of ordering and holding inventory. Since the average inventory level is half the EOQ, it suggests that the firm is ordering and holding inventory efficiently, without excessive inventory or stockouts.Rate this question:
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- 14.
Cycle counting can be described as:
- A.
The analysis performed by an ABC analysis
- B.
Inventory control in a motorcycle shop
- C.
Stock counts of MRO items
- D.
Physically counting inventory on a periodic basis
Correct Answer
D. Physically counting inventory on a periodic basisExplanation
Cycle counting refers to the practice of physically counting inventory on a regular basis, usually on a periodic basis. This method allows businesses to regularly and systematically count a portion of their inventory, rather than conducting a full inventory count all at once. By counting inventory in smaller, manageable cycles, businesses can ensure accuracy and identify any discrepancies or issues in a timely manner. This helps in maintaining an accurate inventory record and enables businesses to take corrective actions to improve inventory management and control.Rate this question:
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- 15.
Too much inventory creates:
- A.
Excess carrying cost
- B.
Excess stockout cost
- C.
Excess setup cost
- D.
Excess ordering cost
Correct Answer
A. Excess carrying costExplanation
Excess carrying cost refers to the additional expenses incurred due to holding excessive inventory. When there is too much inventory, it requires additional storage space, increases the risk of obsolescence, and ties up capital that could be used elsewhere. These factors contribute to higher carrying costs, including storage fees, insurance, depreciation, and opportunity cost. Therefore, having excess inventory can lead to increased carrying costs, negatively impacting the overall profitability and efficiency of a business.Rate this question:
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- 16.
Each unit produced contains $1.25 in materials. This is an example of
- A.
Setup Cost
- B.
Processing Cost
- C.
Direct Cost
- D.
Carrying Cost
Correct Answer
C. Direct CostExplanation
The given statement indicates that the cost of materials used in producing each unit is $1.25. This cost is directly attributable to the production of each unit and can be easily traced to it. Therefore, it is considered a direct cost.Rate this question:
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- 17.
Independent demand is the:
- A.
Internal demand for all end-item parts and materials
- B.
Demand for a firm's end products
- C.
Forcasted demand for purchased items
- D.
Absolute demand for all items
Correct Answer
B. Demand for a firm's end productsExplanation
The correct answer is demand for a firm's end products. Independent demand refers to the demand for finished goods or end products that are directly influenced by the market and customer demand. It is not related to internal demand for parts and materials or forecasted demand for purchased items.Rate this question:
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- 18.
Which of the following would be considered a dependent demand item?
- A.
Bicycle tires used to assemble a bicycle
- B.
Televisions
- C.
Furniture
- D.
Retail customers
Correct Answer
A. Bicycle tires used to assemble a bicycleExplanation
Bicycle tires used to assemble a bicycle would be considered a dependent demand item because they are directly tied to the demand for bicycles. The demand for bicycle tires is dependent on the demand for bicycles, as they are a necessary component for assembling a bicycle. In contrast, televisions, furniture, and retail customers are not dependent demand items as they are not directly tied to the demand for any specific product.Rate this question:
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- 19.
Lubricants for production equipment which are not parts of the final products are called:
- A.
Raw materials
- B.
Work in process
- C.
MRO
- D.
Finished goods
- E.
Cycle stock
Correct Answer
C. MROExplanation
MRO stands for Maintenance, Repair, and Operations. Lubricants used for production equipment that are not part of the final products are categorized as MRO items. These lubricants are necessary for the smooth functioning and maintenance of the equipment, ensuring their longevity and efficiency. MRO items are distinct from raw materials, work in process, finished goods, and cycle stock, as they are specifically used for maintenance purposes rather than being directly incorporated into the final products.Rate this question:
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- 20.
Which one of the following is NOT a reason for firms to carry inventory?
- A.
To meet variations in product demand
- B.
To increase production change/setup costs
- C.
To allow for production scheduling flexibility
- D.
To take advantage of quantity discounts
- E.
To maintain independence of operations
Correct Answer
B. To increase production change/setup costsExplanation
The given answer, "to increase production change/setup costs," is not a reason for firms to carry inventory. Inventory is typically held to meet variations in product demand, allow for production scheduling flexibility, take advantage of quantity discounts, and maintain independence of operations. Increasing production change/setup costs is not a purpose of carrying inventory; rather, it would be a disadvantage or cost associated with inventory management.Rate this question:
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- 21.
Which of the following is a disadvantage of carrying too much inventory?
- A.
It creates an unnecessary waste of scarce resources
- B.
It leads to higher annual inventory ordering costs
- C.
It leads to lower average finished goods inventories
- D.
It increases the need to purchase items
- E.
It reduces the need to conduct cycle counts
Correct Answer
A. It creates an unnecessary waste of scarce resourcesExplanation
Carrying too much inventory creates an unnecessary waste of scarce resources because it ties up capital that could be used for other purposes. It also takes up physical space and requires additional resources for storage and maintenance. Additionally, if the inventory becomes obsolete or expires, it results in a loss of resources. Therefore, carrying excessive inventory can be inefficient and costly for a business.Rate this question:
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- 22.
Which of the following would refer to the 80/20 rule when applied to the ABC inventory control system?
- A.
80 percent of the items account for 20 percent of the groups
- B.
20 percent of the items account for 80 percent of the tasks
- C.
80 percent of the unit cost accounts for 20 percent of the items
- D.
80 percent of the total annual $ usage is accounted for, by 20 percent of the items4
Correct Answer
D. 80 percent of the total annual $ usage is accounted for, by 20 percent of the items4Explanation
The correct answer is "80 percent of the total annual $ usage is accounted for, by 20 percent of the items." This answer refers to the 80/20 rule when applied to the ABC inventory control system. The 80/20 rule states that 80 percent of the effects come from 20 percent of the causes. In the context of the ABC inventory control system, it means that 80 percent of the total annual dollar usage is accounted for by only 20 percent of the items in the inventory. This suggests that a small number of items have a significant impact on the overall cost and should be closely monitored and controlled.Rate this question:
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- 23.
Which of the following describes a global RFID challenge?
- A.
Foreign firms will not use global RFID since the field communication standards tend to vary from country to country
- B.
Globally, the RFID industry does not have its own UHF spectrum allocation
- C.
RFID tags are passive in undeveloped countries
- D.
RFID can track outbound shipments only
Correct Answer
B. Globally, the RFID industry does not have its own UHF spectrum allocationExplanation
The correct answer states that globally, the RFID industry does not have its own UHF spectrum allocation. This means that there is no specific frequency band designated for RFID use worldwide. As a result, different countries may use different frequency bands for RFID communication, which can pose a challenge for global implementation and interoperability of RFID systems.Rate this question:
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- 24.
Which one do you like?
- A.
Option 1
- B.
Option 2
- C.
Option 3
- D.
Option 4
Correct Answer
A. Option 1 -
- 25.
The primary purpose of the basic economic order quantity (EOQ) model is to:
- A.
Calculate the reorder point, so that replenishments take place at the proper time
- B.
Minimize the sum of purchase cost and holding cost
- C.
Maximize the customer service level
- D.
Calculate the optimum safety stock level
- E.
None of the above
Correct Answer
E. None of the aboveExplanation
The primary purpose of the basic economic order quantity (EOQ) model is to minimize the sum of purchase cost and holding cost. The EOQ model helps businesses determine the optimal order quantity that minimizes the costs associated with ordering and holding inventory. By finding the balance between these costs, businesses can effectively manage their inventory levels and reduce expenses. The other options mentioned, such as calculating the reorder point, maximizing customer service level, and calculating the optimum safety stock level, are not the primary purposes of the EOQ model.Rate this question:
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- 26.
If an item is ordered using 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
Correct Answer
B. Equal to the annual ordering costExplanation
The annual carrying cost should be equal to the annual ordering cost when an item is ordered using its economic order quantity. This is because the economic order quantity aims to minimize the total cost of ordering and carrying inventory. The carrying cost refers to the cost of holding inventory, which includes expenses such as storage, insurance, and obsolescence. By setting the annual carrying cost equal to the annual ordering cost, the total cost of inventory is optimized, resulting in an efficient ordering strategy.Rate this question:
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- 27.
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
Correct Answer
B. Annual purchase cost of goodsExplanation
The annual purchase cost of goods may be omitted from the basic EOQ derivation because it is a constant. This means that regardless of the order quantity, the cost of purchasing goods remains the same. Therefore, it does not affect the calculation of the optimal order quantity in the EOQ model.Rate this question:
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- 28.
Which of the following is NOT an assumption of the economic order quantity (EOQ) 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 occur simultaneously
Correct Answer
D. Production and use occur simultaneouslyExplanation
The assumption of the economic order quantity (EOQ) model is that production and use occur simultaneously. This means that inventory is replenished instantaneously as soon as it is used. However, in reality, there may be a time lag between production and use, which can affect the accuracy of the EOQ model. Therefore, this assumption is not considered in the EOQ model.Rate this question:
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- 29.
The cost of a product is $5, and the carrying cost rate is 20%; the cost of processing an order is $45 and the annual demand is 1000. What is the economic order quantity (EOQ)?
- A.
5
- B.
20
- C.
25
- D.
200
- E.
300
Correct Answer
E. 300Explanation
The economic order quantity (EOQ) is calculated using the formula EOQ = √((2DS)/H), where D is the annual demand, S is the cost of processing an order, and H is the carrying cost rate. In this case, D = 1000, S = $45, and H = 20%. Plugging these values into the formula, we get EOQ = √((2*1000*45)/0.2) = √(90000/0.2) = √450000 = 300. Therefore, the economic order quantity (EOQ) is 300.Rate this question:
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- 30.
Which one of the following statements regarding the economic order quantity (EOQ) 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, then the annual holding cost will exceed the annual ordering cost
- C.
The EOQ model assumes a variable demand pattern
- D.
When the holding cost rate drops, both the annual holding cost and the EOQ decrease4
- E.
The EOQ is frequently used to determine the optimum shipping quantity
Correct Answer
B. If an order quantity is larger than the EOQ, then the annual holding cost will exceed the annual ordering cost -
- 31.
Use the information below to calculate the number of orders per year when using the EOQ
- A.
49
- B.
81
- C.
123
- D.
202
Correct Answer
A. 49 -
- 32.
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 $50,000 this scenario would reveal that:
- A.
Your order size was lower than the EOQ
- B.
Your order lot size was equal to the EOQ
- C.
Your order lot size was higher than the EOQ
- D.
Nothing because there is insufficient information to discern where the EOQ would be
Correct Answer
C. Your order lot size was higher than the EOQExplanation
This scenario reveals that the order lot size was higher than the Economic Order Quantity (EOQ). The EOQ is the optimal order quantity that minimizes the total cost of inventory management, considering both the ordering cost and holding cost. In this case, the annual ordering cost of $50,000 is lower than the annual holding cost of $150,000, indicating that the order lot size is larger than the EOQ. This means that the company is ordering more items than necessary, resulting in higher holding costs.Rate this question:
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- 33.
The EOQ model with quantity discounts attempts to determine
- A.
The lowest purchasing price
- B.
Whether to use a fixed-quantity or fixed-period order policy
- C.
How many units should be ordered
- D.
The shortest lead time to use
Correct Answer
C. How many units should be orderedExplanation
The EOQ model with quantity discounts attempts to determine how many units should be ordered. This model calculates the optimal order quantity that minimizes the total cost of inventory, including ordering costs and holding costs. By considering quantity discounts, the model aims to find the order quantity that maximizes the cost savings associated with purchasing larger quantities. Therefore, the correct answer is how many units should be ordered.Rate this question:
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- 34.
When demand and delivery lead time are known and constant, daily demand = 8, purchase lead time = 5 days, and the purchase price = $20/unit, then the reorder point is
- A.
2
- B.
13
- C.
32
- D.
40
Correct Answer
D. 40Explanation
The reorder point is the inventory level at which a new order should be placed to avoid stockouts. In this case, the daily demand is 8 units, and the purchase lead time is 5 days. Therefore, the reorder point can be calculated by multiplying the daily demand by the lead time: 8 units/day * 5 days = 40 units. This means that when the inventory level reaches 40 units, a new order should be placed to replenish the stock and prevent running out of inventory.Rate this question:
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- 35.
When demand and delivery lead time are known and constant, the reorder point is the ____.
- A.
Demand during the delivery lead time
- B.
Safety stock
- C.
Demand during lead time + safety stock
- D.
Economic order quantity
Correct Answer
A. Demand during the delivery lead timeExplanation
The reorder point is the level at which a new order should be placed to replenish inventory. When demand and delivery lead time are known and constant, the reorder point is determined by the demand during the delivery lead time. This means that the reorder point should be set at the level of demand that is expected to occur during the time it takes for a new order to be delivered. By setting the reorder point at this level, a company can ensure that they have enough inventory to meet customer demand without experiencing stockouts or excess inventory.Rate this question:
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- 36.
The College 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 9 days. Compute the statistical reorder point that results in a 95 percent in-stock probability. Choose the closest answer
- A.
20 units
- B.
80 units
- C.
180 units
- D.
200 units
Correct Answer
D. 200 units -
- 37.
The College Bookstore sells a unique calculator to college students. The demand for this calculator is constant at 20 units per day. The lead time for this calculator is variable at an average of 9 days with a standard deviation of 2 days. Compute the statistical reorder point that results in a 95 percent in-stock probability. Choose the closest answer.
- A.
26 units
- B.
46 units
- C.
182 units
- D.
226 units
- E.
246 units
Correct Answer
E. 246 unitsExplanation
The statistical reorder point is the inventory level at which a new order should be placed to ensure a desired in-stock probability. In this case, the demand for the calculator is constant at 20 units per day, and the lead time is variable with an average of 9 days and a standard deviation of 2 days. To calculate the statistical reorder point, we need to consider the lead time demand, which is the demand during the lead time. The lead time demand can be calculated by multiplying the average lead time by the average daily demand, which is 9 days * 20 units/day = 180 units. To account for the variability in lead time, we need to add a safety stock. The safety stock is typically determined based on the desired in-stock probability and the standard deviation of lead time. In this case, the desired in-stock probability is 95 percent, which corresponds to a Z-score of 1.645. The safety stock can be calculated by multiplying the Z-score by the standard deviation of lead time, which is 1.645 * 2 days = 3.29 days. To convert the safety stock from days to units, we multiply it by the average daily demand, which is 3.29 days * 20 units/day = 65.8 units. Finally, we can calculate the statistical reorder point by adding the lead time demand and the safety stock, which is 180 units + 65.8 units = 245.8 units. Since we need to choose the closest answer, the correct answer is 246 units.Rate this question:
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- 38.
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, compared to the EOQ system
- B.
A higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system
- C.
It is more expensive to administer compared to the Continuous Review System
- D.
The only uncertainty is the magnitude of demand during the delivery lead time
Correct Answer
B. A higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ systemExplanation
In the Periodic Review System, a higher level of safety stock is required to buffer against uncertainty in demand over a longer planning horizon compared to the EOQ system. This is because in the Periodic Review System, inventory levels are reviewed and replenished at fixed intervals, regardless of the actual inventory level. This fixed interval may result in larger variations in demand and lead to a higher level of uncertainty. Therefore, a higher level of safety stock is needed to ensure that there is enough inventory to meet demand during these uncertain periods. In contrast, the EOQ system calculates the optimal order quantity based on demand variability, resulting in a lower level of safety stock.Rate this question:
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