Mgmt 318-Chapter 12

59 Questions | Total Attempts: 199

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Management Quizzes & Trivia

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Questions and Answers
  • 1. 
    28) Which of the following statements regarding Amazon.com is false?
    • A. 

      A) The company was opened by Jeff Bezos in 1995.

    • B. 

      B) The company was founded as, and still is, a "virtual retailer" with no inventory.

    • C. 

      C) The company is now a world-class leader in warehouse management and automation.

    • D. 

      D) The company uses both United Parcel Service and the U.S. Postal Service as shippers.

    • E. 

      E) Amazon obtains its competitive advantage through inventory management.

  • 2. 
    29) Which of the following is a function of inventory?
    • A. 

      A) to decouple or separate parts of the production process

    • B. 

      B) to decouple the firm from fluctuations in demand and provide a stock of goods that will provide a selection for customers

    • C. 

      C) to take advantage of quantity discounts

    • D. 

      D) to hedge against inflation

    • E. 

      E) All of the above are functions of inventory.

  • 3. 
    30) Which of the following would not generally be a motive for a firm to hold inventories?
    • A. 

      A) to decouple or separate parts of the production process

    • B. 

      B) to provide a stock of goods that will provide a selection for customers

    • C. 

      C) to take advantage of quantity discounts

    • D. 

      D) to minimize holding costs

    • E. 

      E) All of the above are functions of inventory.

  • 4. 
    31) Which of the following is not one of the four main types of inventory?
    • A. 

      A) raw material inventory

    • B. 

      B) work-in-process inventory

    • C. 

      C) maintenance/repair/operating supply inventory

    • D. 

      D) safety stock inventory

    • E. 

      E) All of these are main types of inventory.

  • 5. 
    32) Which of the following statements about ABC analysis is false?
    • A. 

      A) ABC analysis is based on the presumption that controlling the few most important items produces the vast majority of inventory savings.

    • B. 

      B) In ABC analysis, "A" Items are tightly controlled, have accurate records, and receive regular review by major decision makers.

    • C. 

      C) In ABC analysis, "C" Items have minimal records, periodic review, and simple controls.

    • D. 

      D) ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.

    • E. 

      E) All of the above statements are true.

  • 6. 
    • A. 

      A) inventory may be categorized by measures other than dollar volume

    • B. 

      B) it categorizes on-hand inventory into three groups based on annual dollar volume

    • C. 

      C) it is an application of the Pareto principle

    • D. 

      D) it states that all items require the same degree of control

    • E. 

      E) it states that there are the critical few and the trivial many inventory items

  • 7. 
    34) ABC analysis is based upon the principle that
    • A. 

      A) all items in inventory must be monitored very closely

    • B. 

      B) there are usually a few critical items, and many items which are less critical

    • C. 

      C) an item is critical if its usage is high

    • D. 

      D) more time should be spent on class "C" items because there are more of them

    • E. 

      E) an item is critical if its unit price is high

  • 8. 
    35) ABC analysis divides on-hand inventory into three classes, generally based upon
    • A. 

      A) item quality

    • B. 

      B) unit price

    • C. 

      C) the number of units on hand

    • D. 

      D) annual demand

    • E. 

      E) annual dollar volume

  • 9. 
    36) Cycle counting
    • A. 

      A) is a process by which inventory records are verified once a year

    • B. 

      B) provides a measure of inventory accuracy

    • C. 

      C) provides a measure of inventory turnover

    • D. 

      D) assumes that all inventory records must be verified with the same frequency

    • E. 

      E) assumes that the most frequently used items must be counted more frequently

  • 10. 
    37) Which of the following statements regarding control of service inventories is true?
    • A. 

      A) Service inventory is a fictional concept, because services are intangible.

    • B. 

      B) Service inventory needs no safety stock, because there's no such thing as a service stockout.

    • C. 

      C) Effective control of all goods leaving the facility is one applicable technique.

    • D. 

      D) Service inventory has carrying costs but not setup costs.

    • E. 

      E) All of the above are true.

  • 11. 
    38) The two most basic inventory questions answered by the typical inventory model are
    • A. 

      A) timing and cost of orders

    • B. 

      B) quantity and cost of orders

    • C. 

      C) timing and quantity of orders

    • D. 

      D) order quantity and service level

    • E. 

      E) ordering cost and carrying cost

  • 12. 
    39) Among the advantages of cycle counting is that it
    • A. 

      A) makes the annual physical inventory more acceptable to management

    • B. 

      B) does not require the detailed records necessary when annual physical inventory is used

    • C. 

      C) does not require highly trained people

    • D. 

      D) allows more rapid identification of errors and consequent remedial action than is possible with annual physical inventory

    • E. 

      E) does not need to be performed for less expensive items

  • 13. 
    40) Which of the following are elements of inventory holding costs?
    • A. 

      A) housing costs

    • B. 

      B) material handling costs

    • C. 

      C) investment costs

    • D. 

      D) pilferage, scrap, and obsolescence

    • E. 

      E) All of the above are elements of inventory holding cost.

  • 14. 
    41) Which of the following is not an assumption of the economic order quantity model shown below?  
    • A. 

      A) Demand is known, constant, and independent.

    • B. 

      B) Lead time is known and constant.

    • C. 

      C) Quantity discounts are not possible.

    • D. 

      D) Production and use can occur simultaneously.

    • E. 

      E) The only variable costs are setup cost and holding (or carrying) cost.

  • 15. 
    42) The primary purpose of the basic economic order quantity model shown below is
    • A. 

      A) to calculate the reorder point, so that replenishments take place at the proper time

    • B. 

      B) to minimize the sum of carrying cost and holding cost

    • C. 

      C) to maximize the customer service level

    • D. 

      D) to minimize the sum of setup cost and holding cost

    • E. 

      E) to calculate the optimum safety stock

  • 16. 
    43) 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
    • A. 

      A) is smaller than the holding cost per unit

    • B. 

      B) is zero

    • C. 

      C) is one-half of the economic order quantity

    • D. 

      D) is affected by the amount of product cost

    • E. 

      E) All of the above are true.

  • 17. 
    44) A certain type of computer costs $1,000, and the annual holding cost is 25%. Annual demand is 10,000 units, and the order cost is $150 per order. What is the approximate economic order quantity?
    • A. 

      A) 16

    • B. 

      B) 70

    • C. 

      C) 110

    • D. 

      D) 183

    • E. 

      E) 600

  • 18. 
    45) Most inventory models attempt to minimize
    • A. 

      A) the likelihood of a stockout

    • B. 

      B) the number of items ordered

    • C. 

      C) total inventory based costs

    • D. 

      D) the number of orders placed

    • E. 

      E) the safety stock

  • 19. 
    • A. 

      A) increase by about 41%

    • B. 

      B) increase by 100%

    • C. 

      C) increase by 200%

    • D. 

      D) increase, but more data is needed to say by how much

    • E. 

      E) either increase or decrease

  • 20. 
    47) In the basic EOQ model, if D=6000 per year, S=$100, H=$5 per unit per month, the economic order quantity is approximately
    • A. 

      A) 24

    • B. 

      B) 100

    • C. 

      C) 141

    • D. 

      D) 490

    • E. 

      E) 600

  • 21. 
    48) Which of the following statements about the basic EOQ model is true?
    • A. 

      A) If the ordering cost were to double, the EOQ would rise.

    • B. 

      B) If annual demand were to double, the EOQ would increase.

    • C. 

      C) If the carrying cost were to increase, the EOQ would fall.

    • D. 

      D) If annual demand were to double, the number of orders per year would increase.

    • E. 

      E) All of the above statements are true.

  • 22. 
    49) Which of the following statements about the basic EOQ model is false?
    • A. 

      A) If the setup cost were to decrease, the EOQ would fall.

    • B. 

      B) If annual demand were to increase, the EOQ would increase.

    • C. 

      C) If the ordering cost were to increase, the EOQ would rise.

    • D. 

      D) If annual demand were to double, the EOQ would also double.

    • E. 

      E) All of the above statements are true.

  • 23. 
    50) A product whose EOQ is 40 experiences a decrease in ordering cost from $90 per order to $10. The revised EOQ is
    • A. 

      A) three times as large

    • B. 

      B) one-third as large

    • C. 

      C) nine times as large

    • D. 

      D) one-ninth as large

    • E. 

      E) cannot be determined

  • 24. 
    51) A product whose EOQ is 400 experiences a 50% increase in demand. The new EOQ is
    • A. 

      A) unchanged

    • B. 

      B) increased by less than 50%

    • C. 

      C) increased by 50%

    • D. 

      D) increased by more than 50%

    • E. 

      E) cannot be determined

  • 25. 
    52) For a certain item, the cost-minimizing order quantity obtained with the basic EOQ model was 200 units and the total annual inventory (carrying and setup) cost was $600. The inventory carrying cost per unit per year for this item is
    • A. 

      A) $1.50

    • B. 

      B) $2.00

    • C. 

      C) $3.00

    • D. 

      D) $150.00

    • E. 

      E) not enough data to determine

  • 26. 
    53) A product has 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 costs.
    • A. 

      A) $400

    • B. 

      B) $800

    • C. 

      C) $1200

    • D. 

      D) Zero; this is a class C item.

    • E. 

      E) Cannot be determined because unit price is not known.

  • 27. 
    54) A product has 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. 

      A) all 4000 units at one time

    • B. 

      B) 200 units per order

    • C. 

      C) every 20 days

    • D. 

      D) 10 times per year.

    • E. 

      E) none of the above

  • 28. 
    55) Which of the following statements regarding the reorder point is true?
    • A. 

      A) The reorder point is that quantity that triggers an action to restock an item.

    • B. 

      B) There is a reorder point even if lead time and demand during lead time are constant.

    • C. 

      C) The reorder point is larger than d x L if safety stock is present.

    • D. 

      D) The fixed-period model has no reorder point.

    • E. 

      E) All of the above are true.

  • 29. 
    56) The EOQ model with quantity discounts attempts to determine
    • A. 

      A) what is the lowest amount of inventory necessary to satisfy a certain service level

    • B. 

      B) what is the lowest purchasing price

    • C. 

      C) whether to use fixed-quantity or fixed-period order policy

    • D. 

      D) how many units should be ordered

    • E. 

      E) what is the shortest lead time

  • 30. 
    57) 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. 

      A) One hundred is the reorder point, and 14 is the order quantity.

    • B. 

      B) Fourteen is the reorder point, and 100 is the order quantity.

    • C. 

      C) The number 100 is a function of demand during lead time.

    • D. 

      D) Fourteen is the safety stock, and 100 is the reorder point.

    • E. 

      E) None of the above is true.

  • 31. 
    58) Which of the following statements regarding the production order quantity model is true?
    • A. 

      A) It applies only to items produced in the firm's own production departments.

    • B. 

      B) It relaxes the assumption that all the order quantity is received at one time.

    • C. 

      C) It relaxes the assumption that the demand rate is constant.

    • D. 

      D) It minimizes the total production costs.

    • E. 

      E) It minimizes inventory.

  • 32. 
    59) Which of these statements about the production order quantity model is false?
    • A. 

      A) The production order quantity model is appropriate when the assumptions of the basic EOQ model are met, except that receipt is noninstantaneous.

    • B. 

      B) Because receipt is noninstantaneous, some units are used immediately, not stored in inventory.

    • C. 

      C) Average inventory is less than one-half of the production order quantity.

    • D. 

      D) All else equal, the smaller the ratio of demand rate to production rate, the larger is the production order quantity.

    • E. 

      E) None of the above is false.

  • 33. 
    60) 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. The production order quantity for this problem is approximately
    • A. 

      A) 139

    • B. 

      B) 174

    • C. 

      C) 184

    • D. 

      D) 365

    • E. 

      E) 548

  • 34. 
    61) A production order quantity problem has daily demand rate = 10 and daily production rate = 50. The production order quantity for this problem is approximately 612 units. The average inventory for this problem is approximately
    • A. 

      A) 61

    • B. 

      B) 245

    • C. 

      C) 300

    • D. 

      D) 306

    • E. 

      E) 490

  • 35. 
    62) Which category of inventory holding costs is much higher than average for rapid-change industries such as PCs and cell phones?
    • A. 

      A) housing costs

    • B. 

      B) material handling costs

    • C. 

      C) labor cost

    • D. 

      D) parts cost

    • E. 

      E) pilferage, scrap, and obsolescence

  • 36. 
    63) When quantity discounts are allowed, the cost-minimizing order quantity
    • A. 

      A) is always an EOQ quantity

    • B. 

      B) minimizes the sum of holding and ordering costs

    • C. 

      C) minimizes the unit purchase price

    • D. 

      D) may be a quantity below that at which one qualifies for that price

    • E. 

      E) minimizes the sum of holding, ordering, and product costs

  • 37. 
    64) Which of the following statements about quantity discounts is false?
    • A. 

      A) The cost-minimizing solution may or may not be where annual holding costs equal annual ordering costs.

    • B. 

      B) In inventory management, item cost becomes relevant to inventory decisions only when a quantity discount is available.

    • C. 

      C) If carrying costs are expressed as a percentage of value, EOQ is larger at each lower price in the discount schedule.

    • D. 

      D) The larger annual demand, the less attractive a discount schedule will be.

    • E. 

      E) The smaller the ordering cost, the less attractive a discount schedule will be. for independent demand

  • 38. 
    65) If the standard deviation of demand is six per week, demand is 50 per week, and the desired service level is 95%, approximately what is the statistical safety stock?
    • A. 

      A) 8 units

    • B. 

      B) 10 units

    • C. 

      C) 16 units

    • D. 

      D) 64 units

    • E. 

      E) Cannot be determined without lead time data.

  • 39. 
    66) A specific product has demand during lead time of 100 units, with a standard deviation of 25 units. What safety stock (approximately) provides a 95% service level?
    • A. 

      A) 41

    • B. 

      B) 55

    • C. 

      C) 133

    • D. 

      D) 140

    • E. 

      E) 165

  • 40. 
    67) Demand for dishwasher water pumps is 8 per day. The standard deviation of demand is 3 per day, and the order lead time is four days. The service level is 95%. What should the reorder point be?
    • A. 

      A) about 18

    • B. 

      B) about 24

    • C. 

      C) about 32

    • D. 

      D) about 38

    • E. 

      E) more than 40

  • 41. 
    68) The purpose of safety stock is to
    • A. 

      A) replace failed units with good ones

    • B. 

      B) eliminate the possibility of a stockout

    • C. 

      C) eliminate the likelihood of a stockout due to erroneous inventory tally

    • D. 

      D) control the likelihood of a stockout due to the variability of demand during lead time

    • E. 

      E) protect the firm from a sudden decrease in demand

  • 42. 
    69) The proper quantity of safety stock is typically determined by
    • A. 

      A) minimizing an expected stockout cost

    • B. 

      B) carrying sufficient safety stock so as to eliminate all stockouts

    • C. 

      C) meeting 95% of all demands

    • D. 

      D) setting the level of safety stock so that a given stockout risk is not exceeded

    • E. 

      E) minimizing total costs

  • 43. 
    70) If demand is not uniform and constant, then stockout risks can be controlled by
    • A. 

      A) increasing the EOQ

    • B. 

      B) placing an extra order

    • C. 

      C) raising the selling price to reduce demand

    • D. 

      D) adding safety stock

    • E. 

      E) reducing the reorder point

  • 44. 
    71) If daily demand is normally distributed with a mean of 15 and standard deviation of 5, and lead time is constant at 4 days, 90 percent service level will require safety stock of approximately
    • A. 

      A) 7 units

    • B. 

      B) 10 units

    • C. 

      C) 13 units

    • D. 

      D) 16 units

    • E. 

      E) 26 units

  • 45. 
    72) If daily demand is constant at 10 units per day, and lead time averages 12 days with a standard deviation of 3 days, 95 percent service requires a safety stock of approximately
    • A. 

      A) 28 units

    • B. 

      B) 30 units

    • C. 

      C) 49 units

    • D. 

      D) 59 units

    • E. 

      E) 114 units

  • 46. 
    73) In a safety stock problem where both demand and lead time are variable, demand averages 150 units per day with a daily standard deviation of 16, and lead time averages 5 days with a standard deviation of 1 day. The standard deviation of demand during lead time is approximately
    • A. 

      A) 15 units

    • B. 

      B) 100 units

    • C. 

      C) 154 units

    • D. 

      D) 500 units

    • E. 

      E) 13,125 units

  • 47. 
    74) The fixed-period inventory model requires more safety stock than the fixed-quantity models because
    • A. 

      A) a stockout can occur during the review period as well as during the lead time

    • B. 

      B) this model is used for products that have large standard deviations of demand

    • C. 

      C) this model is used for products that require very high service levels

    • D. 

      D) replenishment is not instantaneous

    • E. 

      E) setup costs and holding costs are large

  • 48. 
    75) Which of the following items is mostly likely managed using a single-period order model?
    • A. 

      A) Christmas trees

    • B. 

      B) canned food at the grocery store

    • C. 

      C) automobiles at a dealership

    • D. 

      D) metal for a manufacturing process

    • E. 

      E) gas sold to a gas station

  • 49. 
    76) The main trait of a single-period model is that
    • A. 

      A) inventory has limited value after a certain period of time

    • B. 

      B) it has the largest EOQ sizes

    • C. 

      C) demand is unknown

    • D. 

      D) supply is limited

    • E. 

      E) all of the above

  • 50. 
    77) A local club is selling Christmas trees and deciding how many to stock for the month of December.  If demand is normally distributed with a mean of 100 and standard deviation of 20, trees have no salvage value at the end of the month, trees cost $20, and trees sell for $50 what is the service level?
    • A. 

      A) .60

    • B. 

      B) .20

    • C. 

      C) .84

    • D. 

      D) .40

    • E. 

      E) unable to determine given the above information

  • 51. 
    78) Suppose that a newspaper stand is operating under the following conditions; papers cost $.4, have no salvage value, and sell for $.80.  If the salvage value is increased by $.1, what is the increase in service level?
    • A. 

      A) .5

    • B. 

      B) 0

    • C. 

      C) .07

    • D. 

      D) 1

    • E. 

      E) unable to determine given only the above information

  • 52. 
    79) Service level is
    • A. 

      A) the chance of stocking out

    • B. 

      B) the chance of not stocking out

    • C. 

      C) something that should be minimized in retail

    • D. 

      D) calculated as the cost of a shortage divided by (the cost of overage + the cost of shortage) for single- period models

    • E. 

      E) B and D

  • 53. 
    80) A bakery wants to determine how many trays of doughnuts it should prepare each day.  Demand is normal with a mean of 5 trays and standard deviation of 1 tray.  If the owner wants a service level of at least 95% how many trays should he prepare (round to the nearest whole tray)? Assume doughnuts have no salvage value after the day is complete.
    • A. 

      A) 5

    • B. 

      B) 4

    • C. 

      C) 6

    • D. 

      D) 7

    • E. 

      E) unable to determine with the above information

  • 54. 
    81) A disadvantage of the fixed-period inventory system is that
    • A. 

      A) it involves higher ordering costs than the fixed quantity inventory system

    • B. 

      B) additional inventory records are required

    • C. 

      C) the average inventory level is decreased

    • D. 

      D) since there is no count of inventory during the review period, a stockout is possible

    • E. 

      E) orders usually are for larger quantities

  • 55. 
    82) The difference between P and Q inventory systems is
    • A. 

      A) order size

    • B. 

      B) order spacing

    • C. 

      C) maximum service level

    • D. 

      D) A and B

    • E. 

      E) all of the above

  • 56. 
    83) Which of the following is a requirement of Q systems?
    • A. 

      A) perpetual inventory system

    • B. 

      B) constant order spacing

    • C. 

      C) variable lead time

    • D. 

      D) constant demand

    • E. 

      E) all of the above

  • 57. 
    84) Q is to __________ systems as P is to  __________ systems.
    • A. 

      A) fixed quantity, fixed period

    • B. 

      B) variable demand, constant demand

    • C. 

      C) variable lead time, variable demand

    • D. 

      D) variable quantity, variable period

    • E. 

      E) None of the above is accurate

  • 58. 
    85) Which of the following should be higher in P systems than Q?
    • A. 

      A) lead time

    • B. 

      B) demand

    • C. 

      C) order size

    • D. 

      D) order spacing

    • E. 

      E) safety Stock

  • 59. 
    86) An advantage of the fixed-period inventory system is that
    • A. 

      A) the supplier will be more cooperative

    • B. 

      B) there is no physical count of inventory items when an item is withdrawn

    • C. 

      C) no inventory records are required

    • D. 

      D) orders usually are for smaller order quantities

    • E. 

      E) the average inventory level is reduced