Question 1

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

Accepted Answer

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, 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. 
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, 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 2

Define service level.

Accepted Answer

The service level is the perce

Question 3

What is a reorder point?

Accepted Answer

A reorder point is the invento

Question 4

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.
 $$\begin{array} { | c | c | c | } 
\hline \text { SKU } & \text { Annual Demand } & \text { Unit Cost } \
\hline \text { R11 } & 250 & \$ 250 \
\hline \text { S22 } & 75 & \$ 90 \
\hline \text { T33 } & 20 & \$ 60 \
\hline \text { U44 } & 150 & \$ 150 \
\hline \text { V55 } & 100 & \$ 75 \
\hline
\end{array}$$

Accepted Answer

R11 and U44 represent over 80% of the fi

Question 5

Holstein Computing manufactures an inexpensive audio card (Audio Max) for assembly into several models of its microcomputers. The annual demand for this part is 100,000 units. The annual inventory carrying cost is $5 per unit and the cost of preparing an order and making production setup for the order is $750. The company operates 250 days per year. The machine used to manufacture this part has a production rate of 2000 units per day.
a. Calculate the optimum lot size.
b. How many lots are produced in a year?
c. What is the average inventory for Audio Max?
d. What is the annual cost of preparing the orders and making the setups for Audio Max?

Accepted Answer

This problem requires the production ord

Question 6

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

Accepted Answer

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

Question 7

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

Accepted Answer

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 
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 8

A product has a reorder point of 110 units, and is ordered four times a year. The following table shows the historical distribution of demand values observed during the reorder period.
 $$\begin{array} { | c | c | } 
\hline \text { Demand } & \text { Probability } \
\hline 100 & .3 \
\hline 110 & .4 \
\hline 120 & .2 \
\hline 130 & .1 \
\hline
\end{array}$$ 
Managers have noted that stockouts occur 30 percent of the time with this policy, and question whether a change in inventory policy, to include some safety stock, might be an improvement. The managers realize that any safety stock would increase the service level, but are worried about the increased costs of carrying the safety stock. Currently, stockouts are valued at $20 per unit per occurrence, while inventory carrying costs are $10 per unit per year. What is your advice?
 Do higher levels of safety stock add to total costs, or not?
 What level of safety stock is best?

Accepted Answer

@#IMG-DLM& The cheapest inventory policy

Question 9

__________ is extra stock that is carried to serve as a buffer.

Accepted Answer

The answer of __________ is extra stock that is carried...

Question 10

ABC analysis divides on-hand inventory into three classes, generally based upon

Accepted Answer

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

Question 11

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?

Accepted Answer

A)  .5 
B)  0 
C)  .07 
D)  1 
E)  unable to determine given only the above information 
A)  .5 
B)  0 
C)  .07 
D)  1 
E)  unable to determine given only the above information

Question 12

__________ is a continuing reconciliation of inventory with inventory records.

Accepted Answer

The answer of __________ is a continuing reconciliation of inventory...

Question 13

The annual demand, ordering cost, and the inventory carrying cost rate for a certain item are D = 600 units, S = $20/order and I = 30% of item price. Price is established by the following quantity discount schedule. What should the order quantity be in order to minimize the total annual cost?
 $$\begin{array} {| l | l | l | l | } 
\hline \text { Quantity } & 1 \text { to } 49 & 50 \text { to } 249 & 250 \text { and up } \
\hline \text { Price } & \$ 5.00 \text { per unit } & \$ 4.50 \text { per unit } & \$ 4.10 \text { per unit } \
\hline
\end{array}$$

Accepted Answer

The firm should order 250 units at a tim

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

A product has a reorder point of 260 units, and is ordered ten times a year. The following table shows the historical distribution of demand values observed during the reorder period.
 $$\begin{array} { | c | c | } 
\hline \text { Demand } & \text { Probability } \
\hline 240 & .1 \
\hline 250 & .2 \
\hline 260 & .4 \
\hline 270 & .2 \
\hline 280 & .1 \
\hline
\end{array}$$ 
Currently, stockouts are valued at $5 per unit per occurrence, while inventory carrying costs are $2 per unit per year. Should the firm add safety stock?
 If so, how much safety stock should be added?

Accepted Answer

@#IMG-DLM& The current policy is not the

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

Independent demand means that demand for

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 15: Inventory Management

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

Define service level.

What is a reorder point?

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 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

__________ is extra stock that is carried to serve as a buffer.

ABC analysis divides on-hand inventory into three classes, generally based upon

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?

__________ is a continuing reconciliation of inventory with inventory records.

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

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

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

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

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

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

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