Question 1

High setup costs favor producing in small batches.

Accepted Answer

A) True 
 B)False

Question 2

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 3

In the fixed-time period model it is necessary to determine the inventory currently on hand to calculate the size of the order to place with a vendor.

Accepted Answer

A) True 
 B)False

Question 4

Price-break models deal with the fact that the selling price of an item generally increases as the order size increases.

Accepted Answer

A) True 
 B)False

Question 5

Using the fixed-time-period inventory model, and given an average daily demand of 200 units, 4 days between inventory reviews, 5 days for lead time, 120 units of inventory on hand, a z of 1.96, and a standard deviation of demand over the review and lead time of 3 units, which of the following is the order quantity?

Accepted Answer

A)  About 1,086 
B)  About 1,686 
C)  About 1,806 
D)  About 2,206 
E)  About 2,686

Question 6

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

Question 7

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 8

When stocked items are sold, the optimal inventory decision using marginal analysis is to stock that quantity where the probable profit from the sale or use of the last unit is equal to or greater than the probable losses if the last unit remains unsold.

Accepted Answer

A) True 
 B)False

Question 9

The "sawtooth effect" is named after the jagged shape of the graph of inventory levels over time.

Accepted Answer

A) True 
 B)False

Question 10

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 10 days and the number of days between reviews is 15. Which of the following is the standard deviation of demand over the review and lead time period if the standard deviation of daily demand is 10?

Accepted Answer

A)  25 
B)  40 
C)  50 
D)  73 
E)  100

Question 11

In making any decision that affects inventory size, which of the following costs do not need to be considered?

Accepted Answer

A)  Holding costs 
B)  Setup costs 
C)  Ordering costs 
D)  Fixed costs 
E)  Shortage costs

Question 12

Which of the following is not included as an inventory holding cost?

Accepted Answer

A)  Annualized cost of materials 
B)  Handling 
C)  Insurance 
D)  Pilferage 
E)  Storage facilities

Question 13

The fixed-order quantity inventory model is more appropriate for important items such as critical repair parts because there is closer monitoring and, therefore, quicker response to a potential stock out.

Accepted Answer

A) True 
 B)False

Question 14

Using the simple order quantity model in an inventory control problem, Kathy calculated the order quantity to be 1,000 units. In a review, she found out that the demand is actually double that of the quantity she had used and the holding cost is only half that of the value she used. The new economic order quantity using the correct data will be

Accepted Answer

A)  1,000. 
B)  2,000. 
C)  1,414. 
D)  707.1. 
E)  cannot be found without other cost information.

Question 15

Using the fixed-time-period inventory model, and given an average daily demand of 75 units, 10 days between inventory reviews, 2 days for lead time, 50 units of inventory on hand, a service probability of 95 percent, and a standard deviation of demand over the review and lead time of 8 units, which of the following is the order quantity?

Accepted Answer

A)  863 
B)  948 
C)  1,044 
D)  1,178 
E)  4,510

Question 16

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 17

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 18

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

Accepted Answer

A) True 
 B)False

Question 19

Which of the following values for z should we use in as a safety stock calculation if we want a service probability of 98 percent?

Accepted Answer

A)  1.64 
B)  1.96 
C)  2.05 
D)  2.30 
E)  None of these choices are correct

Question 20

An inventory control system is designed to keep employees from pilfering inventory from a firm.

Accepted Answer

A) True 
 B)False

Exam 20: Inventory Management

High setup costs favor producing in small batches.

In the fixed-time period model it is necessary to determine the inventory currently on hand to calculate the size of the order to place with a vendor.

Price-break models deal with the fact that the selling price of an item generally increases as the order size increases.

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

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.

When stocked items are sold, the optimal inventory decision using marginal analysis is to stock that quantity where the probable profit from the sale or use of the last unit is equal to or greater than the probable losses if the last unit remains unsold.

The "sawtooth effect" is named after the jagged shape of the graph of inventory levels over time.

In making any decision that affects inventory size, which of the following costs do not need to be considered?

Which of the following is not included as an inventory holding cost?

The fixed-order quantity inventory model is more appropriate for important items such as critical repair parts because there is closer monitoring and, therefore, quicker response to a potential stock out.

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

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.

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

Which of the following values for z should we use in as a safety stock calculation if we want a service probability of 98 percent?

An inventory control system is designed to keep employees from pilfering inventory from a firm.