Chapter 6 Inventory Control Models

31) For the single-period model, if marginal loss increases relative to marginal profit, then the optimal order quantity will increase.

32) Inventory

A) is any stored resource used to satisfy current or future need.

B) includes raw materials, work-in-process, and finished goods.

C) levels for finished goods are a direct function of demand.

D) needs from raw materials through finished goods can be reasonably determined, once finished goods demand is determined.

E) All of the above

33) Which of the following is not a use of inventory?

A) the decoupling function

B) quantity discounts

C) irregular supply and demand

D) the translucent function

E) to avoid stockouts and shortages

34) In making inventory decisions, the purpose of the basic EOQ model is to

A) minimize carrying costs.

B) minimize ordering costs.

C) minimize the sum of carrying costs and ordering costs.

D) minimize customer dissatisfaction.

E) minimize stock on hand.

35) Which of the following is not considered a significant inventory cost?

A) cost of production labor

B) purchase cost

C) cost of stockouts

D) cost of carrying an item

E) cost of ordering

36) Which of the following is part of the determination of EOQ?

A) cost of production labor

B) cost of stockouts

C) purchase cost

D) annual demand

E) total revenue

37) Which of the following factors is (are) not included in ordering cost?

A) bill paying

B) obsolescence

C) purchasing department overhead costs

D) inspecting incoming inventory

E) developing and sending purchase orders

38) Which of the following factors is (are) not included in carrying cost?

A) spoilage

B) obsolescence

C) cost of capital

D) inspecting incoming inventory

E) warehousing overhead costs

39) Mark Achin sells 3,600 electric motors each year. The cost of these is $200 each, and demand is constant throughout the year. The cost of placing an order is $40, while the holding cost is $20 per unit per year. There are 360 working days per year and the lead-time is 5 days. If Mark orders 200 units each time he places an order, what would his total ordering cost be for the year?

A) $2,000

B) $2,720

C) $200

D) $720

E) None of the above

Skills

40) The annual demand for a product has been projected at 2,000 units. This demand is assumed to be constant throughout the year. The ordering cost is $20 per order, and the holding cost is 20 percent of the purchase cost. The purchase cost is $40 per unit. There are 250 working days per year. Currently, the company is ordering 500 units each time an order is placed. Assuming the company uses a safety stock of 20 units resulting in a reorder point of 60 units, what is the expected lead-time for delivery?

A) 4 days

B) 5 days

C) 6 days

D) 7 days

E) None of the above

41) The objective of a(n) ________ system is to reduce costs by integrating all of the operations of a firm.

A) MRP

B) ERP

C) JIT

D) VMI

E) EOQ

42) R. C. Barker makes purchasing decisions for his company. One product that he buys costs $50 per unit when the order quantity is less than 500. When the quantity ordered is 500 or more, the price per unit drops to $48. The ordering cost is $30 per order and the annual demand is 7,500 units. The holding cost is 10 percent of the purchase cost. If R. C. orders 500 units each time he places an order, what would the total annual holding cost be?

A) $450

B) $1,200

C) $1,250

D) $2,400

E) None of the above

43) Which of the following is not an assumption for the basic EOQ model?

A) Only an integer number of orders can be made each year.

B) Quantity discounts are not possible.

C) Inventory receipt is instantaneous (all at once).

D) With orders placed at the correct time, there will be no shortages.

E) Demand is known.

44) For the basic EOQ model, which of the following relationships is not true?

A) The optimal number of orders per year equals annual demand divided by the EOQ.

B) The reorder point equals daily demand multiplied by the lead-time in days, excluding safety stock.

C) Average inventory level equals one-half the order size.

D) The average dollar level of inventory equals unit price multiplied by order quantity.

E) At EOQ, annual ordering cost equals annual carrying cost.

45) The EOQ model without the instantaneous receipt assumption is commonly called the

A) quantity discount model.

B) safety stock model.

C) planned shortage model.

D) production run model.

E) None of the above

46) Which of the following is not a potential drawback of an ERP system?

A) Training employees on the use of the new software can be expensive.

B) The software is costly to customize.

C) The software is expensive to buy.

D) The implementation may require a company to change its normal operations.

E) It does not incorporate inventory control decisions.

47) All of the following are used for marginal analysis with the normal distribution in a single period model except

A) the mean sales for the product.

B) the standard deviation of sales.

C) marginal profit for the product.

D) marginal loss for the product.

E) median sales for the product.

48) A structure tree of the components in a product, with a description and the quantity required to make each product is called a(n)

A) ERP system.

B) MRP system.

C) Master production schedule.

D) Bill of Materials.

E) Inventory Receipt.

49) Sensitivity analysis of EOQ refers to

A) the attitude of top management toward the use of the EOQ model.

B) analysis of how much the EOQ will change if different input values are used.

C) an assessment of the impact of obsolescence upon the EOQ.

D) a study of the impact of storing incompatible products in the same warehouse.

E) analysis of the impact of stock shortages on customers or on production.

50) Which of the following is not a benefit of a well-developed ERP system?

A) It is relatively inexpensive to customize.

B) It can integrate all of the operations of a firm.

C) It can reduce transaction costs.

D) It can increase speed of information.

E) It can increase accuracy of information.

51) The annual demand for a product has been projected at 2,000 units. This demand is assumed to be constant throughout the year. The ordering cost is $20 per order, and the holding cost is 20 percent of the purchase cost. Currently, the purchase cost is $40 per unit. There are 250 working days per year. Whenever an order is placed, it is known that the entire order will arrive on a truck in 6 days. Currently, the company is ordering 500 units each time an order is placed. What is the total holding cost for the year using this policy?

A) $400

B) $2,000

C) $4,000

D) $8,000

E) None of the above

52) Mark Achin sells 3,600 electric motors each year. The cost of these is $200 each, and demand is constant throughout the year. The cost of placing an order is $40, while the holding cost is $20 per unit per year. There are 360 working days per year and the lead-time is 5 days. If Mark orders 200 units each time he places an order, what would his average inventory be (in units)?

A) 100

B) 200

C) 60

D) 120

E) None of the above

53) Andre Candess manages an office supply store. One product in the store is computer paper. Andre knows that 10,000 boxes will be sold this year at a constant rate throughout the year. There are 250 working days per year and the lead-time is 3 days. The cost of placing an order is $30, while the holding cost is $15 per box per year. How many units should Andre order each time?

A) 200

B) 400

C) 500

D) 100

E) None of the above

54) Daniel Trumpe has computed the EOQ for a product he sells to be 400 units. However, due to recent events he has a cash flow problem. Therefore, he orders only 100 units each time he places an order. Which of the following is true for this situation?

A) Annual ordering cost will be lower than annual holding cost.

B) Annual ordering cost will be higher than annual holding cost.

C) Annual ordering cost will equal annual holding cost.

D) Annual ordering cost will be unaffected by the order policy change.

E) Nothing can be determined without more information.

55) With ________, inventory arrives just before it is needed.

A) VMI

B) ABC

C) ERP

D) JIT

E) JBT

56) In a JIT system, inventory managers can uncover bottlenecks by introducing or removing which of the following?

A) C-kanbans

B) P-kanbans

C) E-kanbans

D) T-kanbans

E) I-kanbans

57) Which of the following does not have an impact on EOQ?

A) safety stock

B) demand per unit time

C) order cost

D) holding cost

E) None of the above

58) The demand during the lead-time is normally distributed with a mean of 40 and a standard deviation of 4. If they have calculated a reorder point of 46.60 units, what service level are they assuming?

A) 85 percent

B) 90 percent

C) 95 percent

D) 97.5 percent

E) None of the above

59) Judith Thompson is the manager of the student center cafeteria. She is introducing pizza as a menu item. The pizza is ordered frozen from a local pizza establishment and baked at the cafeteria. Judith anticipates a weekly demand of 10 pizzas. The cafeteria is open 45 weeks a year, 5 days a week. The ordering cost is $15 and the holding cost is $0.40 per pizza per year. What is the optimal number of pizzas Judith should order?

A) 184 pizzas

B) 9 pizzas

C) 5 pizzas

D) 28 pizzas

E) None of the above

60) What shows how many units are needed at every level of production?

A) production level tree

B) material requirements tree

C) decision tree

D) material structure tree

E) Christmas tree