Question 1

In a price break model of lot sizing, to find the lowest-cost order quantity, it is sometimes necessary to calculate the economic order quantity for each possible price and to check to see whether the lowest cost quantity is feasible.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is the set of all cost components that make up the fixed-order quantity total annual cost (TC) function?

Accepted Answer

A)  Annual purchasing cost, annual ordering cost, fixed cost 
B)  Annual holding cost, annual ordering cost, unit cost 
C)  Annual holding cost, annual ordering cost, annual purchasing cost 
D)  Annual lead time cost, annual holding cost, annual purchasing cost 
E)  Annual unit cost, annual set up cost, annual purchasing cost

Question 3

If annual demand is 50,000 units, the ordering cost is $25 per order, and the holding cost is $5 per unit per year, which of the following is the optimal order quantity using the fixed-order quantity model?

Accepted Answer

A)  909 
B)  707 
C)  634 
D)  500 
E)  141

Question 4

Which of the following is not a reason to carry inventory?

Accepted Answer

A)  To provide a safeguard for variation in raw material delivery time 
B)  To take advantage of economic purchase-order size 
C)  To maintain independence of operations 
D)  To meet variation in product demand 
E)  To keep the stock out of the hands of competitors

Question 5

Fixed-order quantity inventory systems determine the reorder point, R, and the order quantity, Q, values.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is an assumption of the basic fixed-order quantity inventory model?

Accepted Answer

A)  Lead times are averaged 
B)  Ordering costs are variable 
C)  Price per unit of product is constant 
D)  Back orders are allowed 
E)  Stock-out costs are high

Question 7

If demand for an item is normally distributed, we plan for demand to be twice the average demand and carry two standard deviations worth of safety stock inventory.

Accepted Answer

A) True 
 B)False

Question 8

The key difference between a fixed-order quantity inventory model where demand is known and one where demand is uncertain is in computing the reorder point.

Accepted Answer

A) True 
 B)False

Question 9

The optimal stocking decision in inventory management, when using marginal analysis, occurs at the point where the benefits derived from carrying the next unit are more than the costs for that unit.

Accepted Answer

A) True 
 B)False

Question 10

The 80-20 rule, that is the logic of the few having the greatest importance and the many having little importance has been broadened to include inventory situations. The term often used to refer to this logic is called what?

Accepted Answer

A)  The Peter Principle 
B)  The Pareto Principle 
C)  Little's Law 
D)  The Parkinson Rule 
E)  The Elitist Conspiracy

Question 11

One of the basic purposes of inventory analysis in manufacturing and stockkeeping services is to determine how large the orders to vendors should be.

Accepted Answer

A) True 
 B)False

Question 12

The standard fixed-time period model assumes that inventory is never counted but determined by EOQ measures.

Accepted Answer

A) True 
 B)False

Question 13

Using the ABC classification system for inventory, which of the following is a true statement?

Accepted Answer

A)  The "C" items are of moderate dollar volume 
B)  You should allocate about 50% of the dollar volume to "B" items 
C)  The "A" items are of low dollar volume 
D)  The "A" items are of high dollar volume 
E)  Inexpensive and low usage items are classified as "C" no matter how critical

Question 14

When material is ordered from a vendor, which of the following is not a reason for delays in the order arriving on time?

Accepted Answer

A)  Normal variation in shipping time 
B)  A shortage of material at the vendor's plant causing backlogs 
C)  An unexpected strike at the vendor's plant 
D)  A lost order 
E)  Redundant ordering systems

Question 15

Fixed-order quantity systems assume a random depletion of inventory, with less than an immediate order when a reorder point is reached.

Accepted Answer

A) True 
 B)False

Question 16

If the cost to change from producing one product to producing another were zero the lot size would be very small.

Accepted Answer

A) True 
 B)False

Question 17

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

Question 18

Which of the following are fixed-order quantity inventory models?

Accepted Answer

A)  Economic order quantity model 
B)  The ABC model 
C)  Periodic replenishment model 
D)  Cycle counting model 
E)  P model

Question 19

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

Question 20

The average cost of inventory in the United States is 20 to 25 percent of its value.

Accepted Answer

A) True 
 B)False

Exam 11: Inventory Management

In a price break model of lot sizing, to find the lowest-cost order quantity, it is sometimes necessary to calculate the economic order quantity for each possible price and to check to see whether the lowest cost quantity is feasible.

Which of the following is the set of all cost components that make up the fixed-order quantity total annual cost (TC) function?

If annual demand is 50,000 units, the ordering cost is $25 per order, and the holding cost is $5 per unit per year, which of the following is the optimal order quantity using the fixed-order quantity model?

Which of the following is not a reason to carry inventory?

Fixed-order quantity inventory systems determine the reorder point, R, and the order quantity, Q, values.

Which of the following is an assumption of the basic fixed-order quantity inventory model?

If demand for an item is normally distributed, we plan for demand to be twice the average demand and carry two standard deviations worth of safety stock inventory.

The key difference between a fixed-order quantity inventory model where demand is known and one where demand is uncertain is in computing the reorder point.

The optimal stocking decision in inventory management, when using marginal analysis, occurs at the point where the benefits derived from carrying the next unit are more than the costs for that unit.

The 80-20 rule, that is the logic of the few having the greatest importance and the many having little importance has been broadened to include inventory situations. The term often used to refer to this logic is called what?

One of the basic purposes of inventory analysis in manufacturing and stockkeeping services is to determine how large the orders to vendors should be.

The standard fixed-time period model assumes that inventory is never counted but determined by EOQ measures.

Using the ABC classification system for inventory, which of the following is a true statement?

When material is ordered from a vendor, which of the following is not a reason for delays in the order arriving on time?

Fixed-order quantity systems assume a random depletion of inventory, with less than an immediate order when a reorder point is reached.

If the cost to change from producing one product to producing another were zero the lot size would be very small.

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?

Which of the following are fixed-order quantity inventory models?

The average cost of inventory in the United States is 20 to 25 percent of its value.