Question 1

________ is the lot size that minimizes total annual inventory holding and ordering costs.

Accepted Answer

The answer of ________ is the lot size that minimizes...

Question 2

Which one of the following statements is best?

Accepted Answer

A)  A P system requires more safety stock than a Q system. 
B)  A P system lends itself more to quantity discounts than does a Q system. 
C)  A P system requires more administrative control and computer support than does a Q system. 
D)  In a periodic review system, the value of Q is kept the same from one cycle to another.

Question 3

A(n)________ system is a visual system in which an item's inventory is stored at two different locations.

Accepted Answer

The answer of A(n)________ system is a visual system in...

Question 4

________ inventory is the portion of total inventory that varies directly with lot size.

Accepted Answer

The answer of ________ inventory is the portion of total...

Question 5

The degree at which all the work can be done is referred to as repeatability.

Accepted Answer

A) True 
 B)False

Question 6

Table 5.9
 Demand = 140 units/week
Standard deviation in weekly demand $= 21$ units
Ordering cost $= \$ 20$ /order
Holding cost $= \$ 1$ per unit per year
Cycle-service level $= 85$ percent
Lead time $= 6$ weeks 
You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.9.Design a continuous review system making Q equal to EOQ.What will be the economic order quantity (EOQ)?

Accepted Answer

A)  less than or equal to 560 
B)  greater than or equal to 560 but less than or equal to 575 
C)  greater than 575 but less than or equal to 590 
D)  more than 590

Question 7

Which one of the following descriptions of a base-stock system is best?

Accepted Answer

A)  It is particularly attractive when review and ordering cost are both significant. 
B)  It can be seen as a way to minimize cycle inventory. 
C)  Examples include gasoline storage tanks at a service station. 
D)  An item's inventory is stored at two different locations or "bins."

Question 8

Jan Tuttle is the inventory manager of an art supply store.She uses a periodic review system for all oil paints.The number of periods between orders (P)for red #69 is 15 workdays.(The store operates 50 weeks/year,5 workdays/week.)Additional information concerning red #69 follows.
Demand = 30 units/workday
Standard deviation of daily demand = 4 units/workday
Lead time = 7 workdays
Desired cycle-service level = 85%
A normal table is appended to this exam.What is the target inventory level T for red #69?

Accepted Answer

A)  less than or equal to 550 
B)  greater than 550 but less than or equal to 600 
C)  greater than 600 but less than or equal to 650 
D)  greater than 650

Question 9

Explain the meaning and significance of the cycle-service level in managing inventory.

Accepted Answer

The answer of Explain the meaning and significance of the...

Question 10

Which one of the following statements is best?

Accepted Answer

A)  The level of safety stock maintained decreases when the desired cycle-service level increases. 
B)  The level of safety stock maintained decreases when the standard deviation of demand during lead time increases. 
C)  When no safety stock is maintained, stockouts will occur during approximately 50 percent of the cycles. 
D)  The level of safety stock maintained is greater if mean absolute deviation (MA
D)  is used rather than standard deviation in estimating forecast errors.

Question 11

Sensitivity analysis on the economic order quantity (EOQ)formula can help the operations manager answer several questions on how to manage inventories.Which one of the following questions is NOT answered by EOQ sensitivity analysis?

Accepted Answer

A)  How critical are errors in estimating demand (
D) , inventory holding cost (H), and setup cost (S)? 
B)  What should happen to lot sizes if interest rates drop? 
C)  What should happen to cycle inventory if the demand rate increases? 
D)  What should happen to lot sizes if supply and lead-time uncertainty increase?

Question 12

Table 5.4
A company operating under a continuous review system has an average demand of 50 units per week for the item it produces. The standard deviation in weekly demand is 20 units. The lead time for the item is 6 weeks, and it costs the company $30 to process each order. The holding cost for each unit is $10 per year. The company operates 52 weeks per year. You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.4.What is the reorder point if the company finally decides to have a 95 percent cycle-service level?

Accepted Answer

A)  less than or equal to 300 units 
B)  greater than 300 but less than or equal to 325 units 
C)  greater than 325 but less than or equal to 350 units 
D)  greater than 350 units

Question 13

An assistant manager is reviewing the costs associated with the store's best-selling product.The data available follows:
Demand = 2000 units/year
Order cost = $80/order
Holding cost = $10/unit/year
a.The current order quantity is 125 units per order.What is the total annual ordering cost and holding cost for this order size?
b.What would be the EOQ and its associated ordering and holding cost?

Accepted Answer

The answer of An assistant manager is reviewing the costs...

Question 14

________ is the cost of preparing a purchase order for a supplier or a production order for the shop.

Accepted Answer

The answer of ________ is the cost of preparing a...

Question 15

Safety stock is only used in continuous review (Q)inventory systems,not in periodic review (P)inventory systems.

Accepted Answer

A) True 
 B)False

Question 16

Your firm uses a continuous review system (Q system),where the inventory position is updated after every transaction.The firm operates 52 weeks per year.One of the items has the following characteristics:
Demand = 14,560 units per year
Ordering cost = $40 per order
Holding cost = $6 per unit per year
Lead time = 2 weeks
Standard deviation in weekly demand = 100 units
Cycle-service level = 80 percent
If Q is made equal to the EOQ,what are the desired values for Q and R?

Accepted Answer

A)  Q is between 65 and 69, and R is between 398 and 402. 
B)  Q is between 65 and 69, and R is between 362 and 366. 
C)  Q is between 439 and 443, and R is between 678 and 682. 
D)  Q is between 439 and 443, and R is between 559 and 563.

Question 17

Holding inventory towards the finished goods level supports lower costs but also results in longer delivery times.

Accepted Answer

A) True 
 B)False

Exam 5: Inventory Management

________ is the lot size that minimizes total annual inventory holding and ordering costs.

Which one of the following statements is best?

A(n)________ system is a visual system in which an item's inventory is stored at two different locations.

________ inventory is the portion of total inventory that varies directly with lot size.

The degree at which all the work can be done is referred to as repeatability.

Which one of the following descriptions of a base-stock system is best?

Explain the meaning and significance of the cycle-service level in managing inventory.

Which one of the following statements is best?

Sensitivity analysis on the economic order quantity (EOQ) formula can help the operations manager answer several questions on how to manage inventories.Which one of the following questions is NOT answered by EOQ sensitivity analysis?

________ is the cost of preparing a purchase order for a supplier or a production order for the shop.

Safety stock is only used in continuous review (Q)inventory systems,not in periodic review (P)inventory systems.

Holding inventory towards the finished goods level supports lower costs but also results in longer delivery times.