Question 1

Using the probability approach, we assume that the demand over a period of time is normally distributed.

Accepted Answer

A) True 
 B)False

Question 2

The costs associated with reduced inventory results in lower profits.

Accepted Answer

A) True 
 B)False

Question 3

A company has recorded the last five days of daily demand on its only product.Those values are 120, 125, 124, 128, and 133.The time from when an order is placed to when it arrives at the company from its vendor is 5 days.Assuming the basic fixed-order-quantity inventory model fits this situation and no safety stock is needed, which of the following is the reorder point (R)?

Accepted Answer

A) 120 
B) 126 
C) 630 
D) 950 
E) 1,200 
A) 120 
B) 126 
C) 630 
D) 950 
E) 1,200

Question 4

If it takes a supplier 25 days to deliver an order once it has been placed and the standard deviation of daily demand is 20, which of the following is the standard deviation of usage during lead time?

Accepted Answer

A) 50 
B) 100 
C) 400 
D) 1,000 
E) 1,600 
A) 50 
B) 100 
C) 400 
D) 1,000 
E) 1,600

Question 5

One of the drivers of the direct-to-store (direct distribution) approach is the increase in global sourcing.

Accepted Answer

A) True 
 B)False

Question 6

Using the fixed-order-quantity model, which of the following is the total ordering cost of inventory given an annual demand of 36,000 units, a cost per order of $80, and a holding cost per unit per year of $4?

Accepted Answer

A) $849 
B) $1,200 
C) $1,889 
D) $2,267 
E) $2,400 
A) $849 
B) $1,200 
C) $1,889 
D) $2,267 
E) $2,400

Question 7

When developing inventory cost models, which of the following is not included as a costs to place an order?

Accepted Answer

A) Phone calls 
B) Taxes 
C) Clerical 
D) Calculating quantity to order 
E) Postage 
A) Phone calls 
B) Taxes 
C) Clerical 
D) Calculating quantity to order 
E) Postage

Question 8

Assuming no safety stock, what is the reorder point (R) given an average daily demand of 50 units, a lead time of 10 days, and 625 units on hand?

Accepted Answer

A) 550 
B) 500 
C) 715 
D) 450 
E) 475 
A) 550 
B) 500 
C) 715 
D) 450 
E) 475

Question 9

Using the probability approach to determine an inventory safety stock and wanting to be 95 percent sure of covering inventory demand, which of the following is the number of standard deviations necessary to have the 95 percent service probability assured?

Accepted Answer

A) 1.28 
B) 1.64 
C) 1.96 
D) 2.00 
E) 2.18 
A) 1.28 
B) 1.64 
C) 1.96 
D) 2.00 
E) 2.18

Question 10

Fixed-order-quantity inventory models are "time triggered."

Accepted Answer

A) True 
 B)False

Question 11

One of the basic purposes of inventory analysis in manufacturing and stock keeping services is to determine the level of quality to specify.

Accepted Answer

A) True 
 B)False

Question 12

Daily demand for fresh cauliflower in the ZZ-Warehouse store follows normal distribution with mean 100 cartons and s.d.20 cartons.The ZZ-Warehouse buys at a cost of $50.00 per carton, sells it for $70.00 per carton.Unsold cartons are sold for $20.00 per carton.What is the optimal order quantity, using the single period model?

Accepted Answer

A)  100 
B)  80 
C)  95 
D)  110 
E)  105 
A)  100 
B)  80 
C)  95 
D)  110 
E)  105

Question 13

The Pareto principle is best applied to which of the following inventory systems?

Accepted Answer

A) EOQ 
B) Fixed-time-period 
C) ABC classification 
D) Fixed-order quantity 
E) Single-period ordering system 
A) EOQ 
B) Fixed-time-period 
C) ABC classification 
D) Fixed-order quantity 
E) Single-period ordering system

Question 14

Safety stock is not necessary in any fixed-time-period system.

Accepted Answer

A) True 
 B)False

Question 15

Firms keep supplies of inventory for which of the following reasons?

Accepted Answer

A) To maintain dependence of operations 
B) To provide a feeling of security for the workforce 
C) To meet variation in product demand 
D) To hedge against wage increases 
E) In case the supplier changes the design 
A) To maintain dependence of operations 
B) To provide a feeling of security for the workforce 
C) To meet variation in product demand 
D) To hedge against wage increases 
E) In case the supplier changes the design

Question 16

In inventory models, high holding costs tend to favor high inventory levels.

Accepted Answer

A) True 
 B)False

Question 17

A company is planning for its financing needs and uses the basic fixed-order-quantity inventory model.Which of the following is the total cost (TC) of the inventory given an annual demand of 10,000, setup cost of $32, a holding cost per unit per year of $4, an EOQ of 400 units, and a cost per unit of inventory of $150?

Accepted Answer

A) $1,501,600 
B) $1,498,200 
C) $500,687 
D) $499,313 
E) None of these 
A) $1,501,600 
B) $1,498,200 
C) $500,687 
D) $499,313 
E) None of these

Question 18

Safety stock can be computed when using the fixed-order-quantity inventory model by multiplying a z value representing the number of standard deviations to achieve a service level or probability by the standard deviation of periodic demand.

Accepted Answer

A) True 
 B)False

Question 19

The fixed-order-quantity inventory model favors less expensive items because average inventory is lower.

Accepted Answer

A) True 
 B)False

Question 20

You would like to use the fixed-time-period inventory model to compute the desired order quantity for a company.You know that vendor lead time is 5 days and the number of days between reviews is 7.Which of the following is the standard deviation of demand over the review and lead time if the standard deviation of daily demand is 8?

Accepted Answer

A) About 27.7 
B) About 32.8 
C) About 35.8 
D) About 39.9 
E) About 45.0 
A) About 27.7 
B) About 32.8 
C) About 35.8 
D) About 39.9 
E) About 45.0

Exam 20: Inventory Management

Using the probability approach, we assume that the demand over a period of time is normally distributed.

The costs associated with reduced inventory results in lower profits.

If it takes a supplier 25 days to deliver an order once it has been placed and the standard deviation of daily demand is 20, which of the following is the standard deviation of usage during lead time?

One of the drivers of the direct-to-store (direct distribution) approach is the increase in global sourcing.

Using the fixed-order-quantity model, which of the following is the total ordering cost of inventory given an annual demand of 36,000 units, a cost per order of $80, and a holding cost per unit per year of $4?

When developing inventory cost models, which of the following is not included as a costs to place an order?

Assuming no safety stock, what is the reorder point (R) given an average daily demand of 50 units, a lead time of 10 days, and 625 units on hand?

Using the probability approach to determine an inventory safety stock and wanting to be 95 percent sure of covering inventory demand, which of the following is the number of standard deviations necessary to have the 95 percent service probability assured?

Fixed-order-quantity inventory models are "time triggered."

One of the basic purposes of inventory analysis in manufacturing and stock keeping services is to determine the level of quality to specify.

The Pareto principle is best applied to which of the following inventory systems?

Safety stock is not necessary in any fixed-time-period system.

Firms keep supplies of inventory for which of the following reasons?

In inventory models, high holding costs tend to favor high inventory levels.

Safety stock can be computed when using the fixed-order-quantity inventory model by multiplying a z value representing the number of standard deviations to achieve a service level or probability by the standard deviation of periodic demand.

The fixed-order-quantity inventory model favors less expensive items because average inventory is lower.

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