59 Questions
| Total Attempts: 199

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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