Management multiple choice
Content
1.
One important use of inventories in manufacturing is to
decouple operations through the use of work-in-process
inventories.
TRUE
Decoupling operations is an important use of inventories.
2.
The objective of inventory management is to minimize the cost of holding inventory.
FALSE
The objective of inventory management is to allow satisfactory customer service while
keeping costs down.
3.
A retail store that carries twice as much inventory as its competitor will provide twice
the customer service level.
FALSE
There is a limit to how high service level can go; if the competitor's service level is 90
percent, the retailer can't double that.
4.
The overall objective of inventory management is to achieve satisfactory levels of
customer service while keeping inventory costs reasonable.
TRUE
This is the overall objective of inventory management.
5.
The two main concerns of inventory control relate to the costs and the level of
customer service.
TRUE
These are the essential facets of inventory control.
6.
To provide satisfactory levels of customer service while keeping inventory costs within
reasonable bounds, two fundamental decisions must be made about inventory: the
timing and the size of orders.
TRUE
These are the fundamental decisions regarding inventory control.
7.
In the EOQ formula, holding costs under 10 percent are expressed as percentages,
above 10 percent are expressed as annual unit costs.
FALSE
Holding costs are expressed in monetary terms, whether as a set value or as a
percentage of the per-unit cost.
8.
DVD recorders would be an example of independent-demand items.
TRUE
Components of the DVD recorders would be dependent-demand items.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 13-11 Describe reorder point models and solve typical problems.
Level of Difficulty: 2 Medium
Topic: Reorder Point Ordering
10.
An example of inventory holding cost is the cost of moving goods to temporary
storage after receipt from a supplier.
FALSE
These are ordering costs.
11.
Decoupling operations applies to the railroad industry.
FALSE
Decoupling refers to buffering operations in manufacturing.
12.
9.
Interest, insurance, and opportunity costs are all associated with holding costs.
TRUE
Reorder point models are primarily used for
dependent-demand items.
These are holding costs.
FALSE
Reorder point models are primarily used for
independent-demand items.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 1 Easy
Topic: Requirements for Effective Inventory Management
13.
The A-B-C approach involves classifying inventory items by unit cost, with expensive
items classified as A items and low-cost items classified as C items.
FALSE
The A-B-C approach classifies inventory according to some measure of importance.
14.
An inventory buffer adds value and lowers cost in all supply chains.
FALSE
Many buffers increase costs across supply chains.
15.
In the A-B-C approach, C items typically represent about 15 percent of the number of
items, but 60 percent of the dollar usage.
FALSE
C items typically represent about 60 percent of the number of items and about 15
percent of the dollar usage.
16.
EOQ inventory models are basically concerned with the timing of orders.
FALSE
EOQ models are concerned with the size of orders.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
17.
The average inventory level is inversely related to order size.
FALSE
The average inventory level is positively related to order size.
18.
The average inventory level and the number of orders per year are inversely related:
As one increases, the other decreases.
TRUE
These are inversely related.
19.
The EOQ should be regarded as an approximate quantity rather than an exact
quantity. Thus, rounding the calculated value is acceptable.
TRUE
The total cost function is relatively flat, so rounding costs little.
20.
Carrying cost is a function of order size; the larger the order, the higher the inventory
carrying cost.
TRUE
Larger order quantities lead to higher inventory carrying cost.
21.
Understocking an inventory item is a sure sign of inadequate inventory control.
FALSE
Having an occasional stockout is not necessarily a sign of inadequate inventory
control.
22.
Annual ordering cost is inversely related to order size.
TRUE
Annual ordering cost decreases as order size increases.
23.
The total cost curve is relatively flat near the EOQ.
TRUE
Thus approximating the EOQ can be a very good solution.
24.
Because price is not a factor in the EOQ formula, quantity discounts will not affect
EOQ calculations.
FALSE
If quantity discounts are offered, the EOQ might vary based on different holding costs.
25.
In the quantity discount model, if holding costs are given as a percentage of unit
price, a graph of the total cost curves will have the same EOQ for each curve.
FALSE
Total cost curves will differ across the price levels.
26.
In the quantity discount model, the optimum quantity will always be found on the
lowest total cost curve.
FALSE
The optimum quantity might actually be when the discount is passed up.
27.
ROP models indicate to managers the time between orders.
FALSE
ROP models indicate when, with regard to on-hand inventory, orders should be
placed.
28.
When to order can be calculated by the ROP and expressed as a quantity.
TRUE
ROP models indicate when, with regard to on-hand inventory, orders should be
placed.
29.
The rate of demand is an important factor in determining the ROP.
TRUE
The demand rate multiplied by the lead time is a major part of the ROP.
30.
The inventory value of the supply chain exceeds the inventory value of the
organization's work-in-process inventory.
TRUE
There can be raw materials and finished goods inventory at the organization. Other
organizations in the supply chain will have inventories, too.
31.
Safety stock is held because we anticipate future demand.
FALSE
Safety stock is held because we anticipate fluctuations in future demand or in lead
time.
32.
Variability in demand and/or lead time can be compensated for by safety stock.
TRUE
Safety stock can be used to accommodate these.
33.
Solving quality problems can lead to lower inventory levels.
TRUE
Leaning out the organization can be facilitated by solving quality problems.
34.
ROP models assume that demand during lead time is composed of a series of
dependent daily demands.
FALSE
ROP models assume that demand during lead time is composed of a series of
independent daily demands.
35.
Profit margins tend to be inversely related to inventory turns.
TRUE
This is typically the case.
36.
In the fixed-order-interval model, the order size is the same for each order.
FALSE
Order size varies from order to order in a fixed-order-interval model.
37.
The fixed-order-interval model requires a continuous monitoring of inventory levels.
FALSE
The fixed-order-interval model leads to periodic monitoring of inventory levels.
38.
Discrete stocking levels are used when an organization does not want visibility of
inventory levels.
FALSE
Discrete stocking refers to having to stock a discrete number of units.
39.
The fixed-order-interval model requires a larger amount of safety stock than the ROP
model for the same risk of a stockout.
TRUE
Fixed order intervals typically carry more safety stock.
40.
The single-period model can be very helpful in determining when to order.
FALSE
The single-period model helps determine how many to order.
41.
The single-period model can be very helpful in determining how much to order.
TRUE
The single-period model helps determine how many to order.
42.
Monitoring inventory turns over time can be used as a measure of performance.
TRUE
Greater turnover often implies better performance.
43.
A single-period model would be used mainly by organizations going out of business.
FALSE
The single-period model applies to many regularly occurring circumstances.
44.
The basic EOQ model ignores the purchasing cost.
TRUE
Only if quantity discounts are offered does purchasing cost enter into EOQ analysis.
45.
When the item is offered for resale, shortage costs in the single-period model can
include a charge for loss of customer goodwill.
TRUE
Greater loss of goodwill would equate with a higher shortage cost.
46.
In the single-period model, the service level is the probability that demand will not
exceed the stocking level in any period.
TRUE
If demand exceeds the stocking level, a stockout has occurred.
47.
A quantity discount will lower the reorder point.
FALSE
The reorder point is independent of quantity discounts.
48.
It is critical that the exact quantity calculated in the EOQ model be ordered.
FALSE
Because the total cost curve is flat, modest rounding of the EOQ is permissible.
49.
Safety stock eliminates all stockouts.
FALSE
Safety stock only ensures a given likelihood of stockouts.
50.
The calculation of safety stock requires knowledge of demand and lead time
variability.
TRUE
Both of these play a role in the calculation of safety stock.
51.
The two basic issues in inventory are how much to order and when to order.
TRUE
Quantity and timing are the two basic issues in inventory management.
52.
Cycle counting can be used in motorcycle inventory control.
TRUE
Cycle counting can also be used in automobile inventory control.
53.
Using the EOQ model, the higher an item's carrying costs, the more frequently it will
be ordered.
TRUE
As carrying costs increase, the optimal order quantity decreases.
Multiple Choice Questions
54.
A stock or store of goods is called a(n):
A.
B.
C.
D.
E.
bundler.
servicer.
retailer.
supply chain.
inventory.
An inventory is a stock or store of goods.
55.
Which of the following is typically the largest of all inventory costs?
A.
B.
C.
D.
E.
shortage cost
purchase cost
holding cost
ordering cost
pipeline cost
Purchase cost is the amount paid to a vendor or supplier to buy the inventory. It is
typically the largest of all inventory costs.
56.
Even though it is often the case that no cash outflows result when demand exceeds
capacity, __________ can nevertheless be experienced in those circumstances.
A.
B.
C.
D.
E.
foreorder costs
service costs
shortage costs
holding costs
setup costs
Shortage costs result when demand exceeds the supply of inventory on hand. These
costs can include the opportunity cost of not making a sale, loss of customer goodwill,
late charges, backorder costs, and similar costs.
57.
If there are shipping cost economies that result from bundling orders for different
items together, the __________ model becomes a relatively more attractive option.
A.
B.
C.
D.
E.
multi-period
reorder-point
fixed-order-quantity
fixed-order-interval
multi-item
Grouping orders for items from the same supplier can produce savings in shipping
costs, making the fixed-order-interval model more attractive.
58.
Average demand for a particular item is 1,200 units per year. It costs $100 to place an
order for this item, and it costs $24 to hold one unit of this item in inventory for one
year. If the fixed-order-interval model is chosen in this instance, how often (on
average) will this item be ordered?
A.
B.
C.
D.
E.
once a month
once every other month
twice a month
twice every three months
three times every two months
The order interval is found by dividing the EOQ (in this case) 100 by the annual
demand (1,200). In this case that leads to an optimal interval of 1/12 th of a year (or
one month).
59.
Weekly demand for a particular item averages 30 units, with a standard deviation of
4. This item is managed with a fixed-order-interval model. The order interval is three
weeks, and this item has a certain lead time of one week. The desired service level is
97.5 percent. Assume that it is now time to place another order, and there are 43
units on hand. How many units should be ordered?
A.
B.
C.
D.
E.
120
93
136
46
84
Expected demand during protection interval [30*(3 + 1)] + safety stock
[1.96*4*sqrt(3 + 1)] - on hand [43] = 120 + 15.68 - 43 ≈ 93.
60.
Which of the following is not one of the assumptions of the basic EOQ model?
A.
Annual demand requirements are known and constant.
B.
Lead time does not vary.
C.
Each order is received in a single delivery.
D.
Quantity discounts are available.
E. Ordering and holding costs have been estimated reasonably accurately.
In the basic EOQ model, quantity discounts are not available.
61.
Which of the following interactions with vendors would potentially lead to inventory
reductions?
A.
B.
C.
D.
E.
reduced lead times
increased safety stock
less frequent purchases
larger batch quantities
longer order intervals
Reducing lead times would have the effect of reducing safety stock requirements and
therefore reducing inventories.
62.
A nonlinear cost related to order size is the cost of:
A.
B.
C.
D.
E.
interest.
insurance.
taxes.
receiving.
space.
Receiving cost is a nonlinear cost associated with order size.
63.
In a two-bin inventory system, the amount contained in the second bin is equal to
the:
A.
B.
C.
D.
E.
ROP.
EOQ.
amount in the first bin.
optimum stocking level.
safety stock.
The second bin equals the amount needed during lead time in addition to any safety
stock.
64.
When carrying costs are stated as a percentage of unit price, the minimum points on
the total cost curves:
A.
B.
C.
D.
E.
line up.
equal zero.
do not line up.
cannot be calculated.
depend on the percentage assigned.
Curves aren't symmetrical if holding cost differs across price breaks.
65.
Dairy items, fresh fruit, and newspapers are items that:
A.
B.
C.
D.
E.
do not require safety stocks.
cannot be ordered in large quantities.
are subject to deterioration and spoilage.
require that prices be lowered every two days.
have minimal holding costs.
Deterioration and spoilage increase holding costs.
66.
Which of the following is least likely to be included in order costs?
A.
B.
C.
D.
E.
processing vendor invoices for payment
processing purchase order
inspecting incoming goods for quantity
taking an inventory to determine how much is needed
temporary storage of delivered goods
Storage costs are holding costs.
67.
In an A-B-C system, the typical percentage of the number of items in inventory for A
items is about:
A.
B.
C.
D.
E.
10.
30.
50.
70.
90.
Class A items represent a relatively small portion of items.
68.
In the A-B-C classification system, items which account for 15 percent of the total
dollar volume for a majority of the inventory items would be classified as:
A.
B.
C.
D.
E.
A items.
B items.
C items.
A items plus B items.
B items plus C items.
These would be class C items.
69.
In the A-B-C classification system, items which account for 60 percent of the total
dollar volume for few inventory items would be classified as:
A.
B.
C.
D.
E.
A items.
B items.
C items.
A items plus B items.
B items plus C items.
These would be class A items.
70.
The purpose of cycle counting is to:
A.
count all the items in inventory.
B.
count bicycles and motorcycles in inventory.
C. reduce discrepancies between inventory records and actual quantities.
D.
reduce theft.
E.
count 10 percent of the items each month.
Cycle counting is intended to improve inventory record accuracy.
71.
The EOQ model is most relevant for which one of the following?
A.
B.
C.
D.
E.
ordering items with dependent demand
determination of safety stock
ordering perishable items
determining fixed-interval order quantities
determining fixed order quantities
The EOQ is a fixed-quantity approach.
72.
Which is not a true assumption in the EOQ model?
A.
B.
C.
D.
E.
Production rate is constant.
Lead time does not vary.
No more than three items are involved.
Usage rate is constant.
No quantity discounts.
EOQ can be used across multiple items.
73.
In a supermarket, a vendor's restocking the shelves every Monday morning is an
example of:
A.
B.
C.
D.
E.
safety stock replenishment.
economic order quantities.
reorder points.
fixed order intervals.
blanket ordering.
This would be a weekly interval model.
74.
A cycle count program will usually require that A items be counted:
A.
B.
C.
D.
E.
daily.
once a week.
monthly.
quarterly.
more often than annually.
Class A items are counted more frequently.
75.
A risk avoider would want ______ safety stock.
A.
B.
C.
D.
E.
less
more
the same
zero
50 percent
Greater risk aversion is associated with more safety stock.
76.
In the basic EOQ model, if annual demand doubles, the effect on the EOQ is:
A.
B.
C.
D.
E.
It doubles.
It is four times its previous amount.
It is half its previous amount.
It is about 70 percent of its previous amount.
It increases by about 40 percent.
The EOQ does not increase linearly with demand.
77.
In the basic EOQ model, if lead time increases from five to 10 days, the EOQ will:
A.
double.
B.
increase, but not double.
C.
decrease by a factor of 2.
D.
remain the same.
E. increase, but more information is needed to calculate exactly how much.
The EOQ is independent of lead time.
78.
In the basic EOQ model, an annual demand of 40 units, an ordering cost of $5, and a
holding cost of $1 per unit per year will result in an EOQ of:
A.
B.
C.
D.
E.
20.
square root of 200.
Use the base EOQ formula.
200.
400.
600.
79.
In the basic EOQ model, if D = 60 per month, S = $12, and H = $10 per unit per
month, EOQ is:
A.
B.
C.
D.
E.
10.
12.
24.
72.
144.
Use the base EOQ formula.
80.
In the basic EOQ model, if annual demand is 50, carrying cost is $2, and ordering cost
is $15, EOQ is approximately:
A.
B.
C.
D.
E.
11.
20.
24.
28.
375.
Use the base EOQ formula.
81.
Which of the following is not true for the economic production quantity model?
A.
B.
C.
D.
E.
Usage rate is constant.
Production rate exceeds usage rate.
Run size exceeds maximum inventory.
There are no ordering or setup costs.
Average inventory is one-half maximum inventory.
There are ordering or setup costs in the EPQ model.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 13-09 Describe the economic production quantity model and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
82.
Given the same demand, setup/ordering costs, and carrying costs, the EPQ calculated
using incremental replenishment will be ____________ if instantaneous replenishment
was assumed.
A.
B.
C.
D.
E.
greater than the EOQ
equal to the EOQ
smaller than the EOQ
greater than or equal to the EOQ
smaller than or equal to the EOQ
The EPQ will be larger than the EOQ.
83.
The introduction of quantity discounts will cause the optimum order quantity to be:
A.
B.
C.
D.
E.
smaller.
unchanged.
greater.
smaller or unchanged.
unchanged or greater.
Quantity discounts cannot make the optimum quantity be smaller.
84.
A fill rate is the percentage of _____ filled by stock on hand.
A.
B.
C.
D.
E.
shipments
demand
inventory
safety stock
lead time
The fill rate is the percentage of demand filled directly from on-hand inventory.
85.
In the quantity discount model, with carrying cost stated as a percentage of unit
purchase price, in order for the EOQ of the lowest curve to be optimum, it must:
A.
B.
C.
D.
E.
have the lowest total cost.
be in a feasible range.
be to the left of the price break quantity for that price.
have the largest quantity compared to other EOQs.
have smaller ordering costs than the others.
If not feasible, that quantity will have to be adjusted upward and then total cost
calculated.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 13-10 Describe the quantity discount model and solve typical problems.
Level of Difficulty: 3 Hard
Topic: How Much to Order: Economic Order Quantity Models
86.
Which one of the following is not generally a determinant of the reorder point?
A.
B.
C.
D.
E.
rate of demand
length of lead time
lead time variability
stockout risk
purchase cost
Purchase cost does not enter into reorder point calculations.
87.
If no variations in demand or lead time exist, the ROP will equal:
A.
B.
C.
D.
E.
the EOQ.
expected usage during lead time.
safety stock.
the service level.
the EOQ plus safety stock.
The ROP will be the demand rate times the lead time.
88.
If average demand for an inventory item is 200 units per day, lead time is three days,
and safety stock is 100 units, the reorder point is:
A.
B.
C.
D.
E.
100
200
300
600
700
units.
units.
units.
units.
units.
The ROP will be the safety stock added to the product of the demand rate and the
lead time.
89.
Which one of the following is implied by a lead time service level of 95 percent?
A. Approximately 95 percent of demand during lead time will be satisfied.
B. Approximately 95 percent of inventory will be used during lead time.
C. The probability is .95 that demand during lead time will exactly equal the amount
on hand at the beginning of lead time.
D. The probability is .95 that demand during lead time will not exceed the amount on
hand at the beginning of lead time.
E. The probability is .95 that the order will arrive after the on-hand inventory is
exhausted.
A stockout only occurs if demand during lead time exceeds the ROP.
90.
Which one of the following is implied by an annual service level of 95 percent?
A.
B.
C.
D.
E.
Approximately 95 percent of demand during lead time will be satisfied.
The probability is .95 that demand will exceed supply during lead time.
The probability is .95 that demand will equal supply during lead time.
The probability is .95 that demand will not exceed supply during lead time.
Approximately 95 percent of all demand will actually be satisfied directly from onhand inventory.
The annual service level is usually greater than the cycle service level, and thus the
risk of a stockout during lead time is much smaller than 5 percent.
91.
Daily usage is exactly 60 gallons per day. Lead time is normally distributed with a
mean of 10 days and a standard deviation of 2 days. What is the standard deviation of
demand during lead time?
A.
B.
C.
D.
E.
60 times 2
60 times the square root of 2
60 times the square root of 10
60 times 10
10 times the square root of 2
The standard deviation of demand during lead time is the square root of squared
demand times the squared standard deviation of lead time.
92.
Lead time is exactly 20 days long. Daily demand is normally distributed with a mean
of 10 gallons per day and a standard deviation of 2 gallons. What is the standard
deviation of demand during lead time?
A.
B.
C.
D.
E.
20 times 2
20 times 10
2 times the square root of 20
2 times the square root of 10
400 times the square root of 10
The standard deviation of demand during lead time equals the daily standard
deviation of demand times the square root of the lead time.
93.
All of the following are possible reasons for using the fixed-order-interval model
except:
A.
supplier policy encourages use.
B.
grouping orders can save in shipping costs.
C. the required safety stock is lower than with an EOQ/ROP model.
D. it is suited to periodic checks of inventory levels rather than continuous
monitoring.
E.
continuous monitoring is not practical.
Safety stock is higher in a fixed-order-interval model.
94.
Which of these products would be most apt to involve the use of a single-period
model?
A.
B.
C.
D.
E.
gold coins
hammers
fresh fish
calculators
frozen corn
The perishability of fresh fish makes it more appropriate for a single-period model.
95.
In a single-period model, if shortage and excess costs are equal, then the optimum
service level is:
A.
B.
C.
D.
E.
0.
.33.
.50.
.67.
.75.
The ratio of shortage cost to shortage plus excess cost is .5.
96.
In a single-period model, if shortage cost is four times excess cost, then the optimum
service level is ___ percent.
A.
B.
C.
D.
E.
100
80
60
40
20
The ratio of shortage cost to shortage plus excess cost is .8.
97.
In the single-period model, if excess cost is double the shortage cost, the approximate
stockout risk, assuming an optimum service level, is ___ percent.
A.
B.
C.
D.
E.
100
67
50
33
5
The ratio of shortage cost to shortage plus excess cost is .67.
98.
In a single-period inventory situation, the probabilities that demand will be 1, 2, 3, or
4 units are .3, .3, .2, and .2, respectively. If two units are stocked, what is the
probability of selling both of them?
A.
B.
C.
D.
E.
.5
.6
.7
.8
.9
Both units will be sold if demand is for 2, 3, or 4 units.
99.
The management of supply chain inventories focuses on:
A.
B.
C.
D.
E.
internal inventories.
external inventories.
both internal and external inventories.
safety stock elimination.
optimizing reorder points.
Supply chain inventory involves both internal and external inventories.
100.
An operations strategy for inventory management should work toward:
A.
B.
C.
D.
E.
increasing lot sizes.
decreasing lot sizes.
increasing safety stocks.
decreasing service levels.
increasing order quantities.
If lot sizes can be reduced, operations become leaner.
101.
Cycle stock inventory is intended to deal with:
A.
B.
C.
D.
E.
excess costs.
shortage costs.
stockouts.
expected demand.
quantity discounts.
Cycle stock is intended to deal with expected demand, while safety stock is intended
to reduce stockouts resulting from demand uncertainty.
102.
An operations strategy which recognizes high carrying costs and reduces ordering
costs will result in:
A.
B.
C.
D.
E.
unchanged order quantities.
slightly decreased order quantities.
greatly decreased order quantities.
slightly increased order quantities.
greatly increased order quantities.
Processes will be leaned, leading to smaller order quantities.
103.
The need for safety stocks can be reduced by an operations strategy which:
A.
B.
C.
D.
E.
increases lead time.
increases lead time variability.
increases lot sizes.
decreases ordering costs.
decreases lead time variability.
Reduced lead time variability will reduce the size of safety stocks.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 13-11 Describe reorder point models and solve typical problems.
Level of Difficulty: 2 Medium
Topic: Operations Strategy
104.
If average demand for an item is 20 units per day, safety stock is 50 units, and lead
time is four days, the ROP will be:
A.
B.
C.
D.
E.
20.
50.
70.
80.
130.
Multiply the demand rate by the lead time and add the safety stock.
105.
With an A-B-C system, an item that had a high demand but a low annual dollar volume
would probably be classified as:
A.
B.
C.
A.
B.
C.
Low-dollar-volume items tend to be classified as C items.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 13-07 Describe the A-B-C approach and explain how it is useful.
Level of Difficulty: 2 Medium
Topic: Requirements for Effective Inventory Management
106.
The fixed-order-interval model would be most likely to be used for this situation:
A. A company has switched from mass production to lean production.
B.
Production is done in batches.
C. Spare parts are ordered when a new machine is purchased.
D.
Grouping orders can save shipping costs.
E.
Demand is highly variable
If ordering costs can be saved by grouping orders, the fixed-order-interval model is
especially attractive.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 13-05 Explain periodic and perpetual review systems.
Level of Difficulty: 3 Hard
Topic: How Much to Order: Fixed-Order-Interval Model
107.
Which item would be least likely to be ordered under a fixed-order-interval system?
A.
B.
C.
D.
textbooks at a college bookstore
auto parts at an assembly plant
cards at a gift shop
canned peas at a supermarket
Auto parts at an assembly plant would be unlikely candidates for a fixed-order-interval
system.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 13-12 Describe situations in which the fixed-order interval model is appropriate; and solve
typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Fixed-Order-Interval Model
108.
Which one of these would not be a factor in determining the reorder point?
A.
B.
C.
D.
E.
the EOQ
the lead time
the variability of demand
the demand or usage rate
all are factors
The ROP is independent of the EOQ.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 13-11 Describe reorder point models and solve typical problems.
Level of Difficulty: 3 Hard
Topic: Reorder Point Ordering
109.
A manufacturer is contemplating a switch from buying to producing a certain item.
Setup cost would be the same as ordering cost. The production rate would be about
double the usage rate. Compared to the EOQ, the economic production quantity
would be approximately:
A.
B.
C.
D.
E.
the same.
20 percent larger.
40 percent larger.
20 percent smaller.
40 percent smaller.
The EPQ will be larger than the EOQ.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 13-09 Describe the economic production quantity model and solve typical problems.
Level of Difficulty: 3 Hard
Topic: How Much to Order: Economic Order Quantity Models
110.
A manufacturer is contemplating a switch from buying to producing a certain item.
Setup cost would be the same as ordering cost. The production rate would be about
double the usage rate. Compared to the EOQ, the maximum inventory would be
approximately:
A.
B.
C.
D.
E.
70 percent higher.
30 percent higher.
the same.
30 percent lower.
70 percent lower.
Maximum inventory is smaller under an EPQ than an EOQ.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 13-09 Describe the economic production quantity model and solve typical problems.
Level of Difficulty: 3 Hard
Topic: How Much to Order: Economic Order Quantity Models
111.
The manager of the Quick Stop Corner Convenience Store (which never closes) sells
four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer
costs $.80 per six-pack (each case of Stein beer contains four six-packs). Orders arrive
three days from the time they are placed. Daily holding costs are equal to 5 percent of
the cost of the beer.
At what point should he reorder Stein beer?
A.
B.
C.
D.
E.
0 cases remaining
4 cases remaining
12 cases remaining
16 cases remaining
20 cases remaining
Use the basic reorder point with no demand uncertainty.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
112.
The manager of the Quick Stop Corner Convenience Store (which never closes) sells
four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer
costs $.80 per six-pack (each case of Stein beer contains four six-packs). Orders arrive
three days from the time they are placed. Daily holding costs are equal to 5 percent of
the cost of the beer.
If he were to order 16 cases of Stein beer at a time, what would be the length of an
order cycle?
A.
B.
C.
D.
E.
.25 days
3 days
1 day
4 days
20 days
Divide the order quantity by the demand rate to get the length of an order cycle.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
113.
The manager of the Quick Stop Corner Convenience Store (which never closes) sells
four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer
costs $.80 per six-pack (each case of Stein beer contains four six-packs). Orders arrive
three days from the time they are placed. Daily holding costs are equal to 5 percent of
the cost of the beer.
If he were to order 16 cases of Stein beer at a time, what would be the average
inventory level?
A.
B.
C.
D.
E.
4 cases
12 cases
8 cases
20 cases
16 cases
Divide the order quantity by 2.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
114.
The manager of the Quick Stop Corner Convenience Store (which never closes) sells
four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer
costs $.80 per six-pack (each case of Stein beer contains four six-packs). Orders arrive
three days from the time they are placed. Daily holding costs are equal to 5 percent of
the cost of the beer.
If he were to order 16 cases of Stein beer at a time, what would be the daily total
inventory costs, EXCLUDING the cost of the beer?
A.
B.
C.
D.
E.
$2.00
$4.00
$1.28
$3.28
$2.56
Multiply the average inventory by the holding cost.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
115.
The manager of the Quick Stop Corner Convenience Store (which never closes) sells
four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer
costs $.80 per six-pack (each case of Stein beer contains four six-packs). Orders arrive
three days from the time they are placed. Daily holding costs are equal to 5 percent of
the cost of the beer.
What is the economic order quantity for Stein beer?
A.
B.
C.
D.
E.
11
14
20
32
8 cases
cases
cases
cases
cases
Use the basic EOQ formula.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
116.
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni
each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and
carrying costs are 4 cents per pound per day. Lead time for each order is three days,
and the pepperoni itself costs $3.00 per pound. At what point should she reorder
pepperoni?
A.
B.
C.
D.
E.
20 pounds remaining
40 pounds remaining
60 pounds remaining
80 pounds remaining
100 pounds remaining
Multiply the demand rate by the lead time.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-11 Describe reorder point models and solve typical problems.
Level of Difficulty: 2 Medium
Topic: Reorder Point Ordering
117.
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni
each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and
carrying costs are 4 cents per pound per day. Lead time for each order is three days,
and the pepperoni itself costs $3.00 per pound. If she were to order 80 pounds of
pepperoni at a time, what would be the length of an order cycle?
A.
B.
C.
D.
E.
0 days
0.25 days
3 days
4 days
5 days
Divide the order quantity by the demand rate.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
118.
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni
each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and
carrying costs are 4 cents per pound per day. Lead time for each order is three days,
and the pepperoni itself costs $3.00 per pound. If she were to order 80 pounds of
pepperoni at a time, what would be the average inventory level?
A.
B.
C.
D.
E.
20 pounds
40 pounds
60 pounds
80 pounds
100 pounds
Divide the order quantity by 2.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
119.
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni
each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and
carrying costs are 4 cents per pound per day. Lead time for each order is three days,
and the pepperoni itself costs $3.00 per pound. If she were to order 80 pounds of
pepperoni at a time, what would be the total daily costs, including the cost of the
pepperoni?
A.
B.
C.
D.
E.
$60.00
$63.20
$64.00
$64.10
$65.00
Add the holding cost to the ordering cost and the cost of the pepperoni.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
120.
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni
each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and
carrying costs are 4 cents per pound per day. Lead time for each order is three days,
and the pepperoni itself costs $3.00 per pound. What is the economic order quantity
for pepperoni?
A.
B.
C.
D.
E.
20 pounds
40 pounds
60 pounds
80 pounds
100 pounds
Use the basic EOQ formula.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
121.
The Operations Manager for Shadyside Savings & Loan orders cash from her home
office for her very popular "BIG BUCKS" automated teller machine, which only
dispenses $100 bills. She estimates that this machine dispenses an average of 12,500
bills per month, and that carrying a bill in inventory costs 10 percent of its value
annually. She knows that each order for these bills costs $300 for clerical and armored
car delivery costs, and that order lead time is six days. Assuming a 30-day month, at
what point should bills be reordered?
A.
B.
C.
D.
E.
0 bills remaining
417 bills remaining
2,500 bills remaining
10,000 bills remaining
12,500 bills remaining
Multiply the demand rate by the lead time.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-11 Describe reorder point models and solve typical problems.
Level of Difficulty: 2 Medium
Topic: Reorder Point Ordering
122.
The Operations Manager for Shadyside Savings & Loan orders cash from her home
office for her very popular "BIG BUCKS" automated teller machine, which only
dispenses $100 bills. She estimates that this machine dispenses an average of 12,500
bills per month, and that carrying a bill in inventory costs 10 percent of its value
annually. She knows that each order for these bills costs $300 for clerical and armored
car delivery costs, and that order lead time is six days. Assuming a 30-day month, if
she were to order 6,000 bills at a time, what would be the length of an order cycle?
A.
B.
C.
D.
E.
.48 days
2.08 days
6 days
8.4 days
14.4 days
Divide the order quantity by the demand rate.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
123.
The Operations Manager for Shadyside Savings & Loan orders cash from her home
office for her very popular "BIG BUCKS" automated teller machine, which only
dispenses $100 bills. She estimates that this machine dispenses an average of 12,500
bills per month, and that carrying a bill in inventory costs 10 percent of its value
annually. She knows that each order for these bills costs $300 for clerical and armored
car delivery costs, and that order lead time is six days. If she were to order 6,000 bills
at a time, what would be the dollar value of the average inventory level?
A.
B.
C.
D.
E.
$3,000
$6,000
$12,500
$300,000
$600,000
Divide the order quantity by 2.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
124.
The Operations Manager for Shadyside Savings & Loan orders cash from her home
office for her very popular "BIG BUCKS" automated teller machine, which only
dispenses $100 bills. She estimates that this machine dispenses an average of 12,500
bills per month, and that carrying a bill in inventory costs 10 percent of its value
annually. She knows that each order for these bills costs $300 for clerical and armored
car delivery costs, and that order lead time is six days. If she were to order 6,000 bills
at a time, what would be the average monthly total costs, EXCLUDING the value of the
bills?
A.
B.
C.
D.
E.
$625
$1,250
$2,500
$3,125
$37,500
Add the ordering and holding costs.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
125.
The Operations Manager for Shadyside Savings & Loan orders cash from her home
office for her very popular "BIG BUCKS" automated teller machine, which only
dispenses $100 bills. She estimates that this machine dispenses an average of 12,500
bills per month, and that carrying a bill in inventory costs 10 percent of its value
annually. She knows that each order for these bills costs $300 for clerical and armored
car delivery costs, and that order lead time is six days. What is the economic order
quantity?
A.
B.
C.
D.
E.
600 bills
3,000 bills
949 bills
6,215 bills
12,500 bills
Use the basic EOQ formula.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
126.
The materials manager for a billiard ball maker must periodically place orders for
resin, one of the raw materials used in producing billiard balls. She knows that
manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04
per day to carry a kilogram of resin in inventory. She also knows that the order costs
for resin are $100 per order, and that the lead time for delivery is four days. At what
point should resin be reordered?
A.
B.
C.
D.
E.
0 kilograms remaining
50 kilograms remaining
200 kilograms remaining
400 kilograms remaining
500 kilograms remaining
Multiply the demand rate by the lead time.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-11 Describe reorder point models and solve typical problems.
Level of Difficulty: 2 Medium
Topic: Reorder Point Ordering
127.
The materials manager for a billiard ball maker must periodically place orders for
resin, one of the raw materials used in producing billiard balls. She knows that
manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04
per day to carry a kilogram of resin in inventory. She also knows that the order costs
for resin are $100 per order, and that the lead time for delivery is four days. If order
size was 1,000 kilograms of resin, what would be the length of an order cycle?
A.
B.
C.
D.
E.
.05 days
4 days
16 days
20 days
50 days
Divide the order quantity by the demand rate.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
128.
The materials manager for a billiard ball maker must periodically place orders for
resin, one of the raw materials used in producing billiard balls. She knows that
manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04
per day to carry a kilogram of resin in inventory. She also knows that the order costs
for resin are $100 per order, and that the lead time for delivery is four days. If the
order size was 1,000 kilograms of resin, what would be the average inventory level?
A.
B.
C.
D.
E.
50 kilograms
200 kilograms
500 kilograms
800 kilograms
1,000 kilograms
Divide the order quantity by 2.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
129.
The materials manager for a billiard ball maker must periodically place orders for
resin, one of the raw materials used in producing billiard balls. She knows that
manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04
per day to carry a kilogram of resin in inventory. She also knows that the order costs
for resin are $100 per order, and that the lead time for delivery is four days. If the
order size was 1,000 kilograms of resin, what would be the daily total inventory costs,
EXCLUDING the cost of the resin?
A.
B.
C.
D.
E.
$5
$10
$20
$25
$40
Multiply the average inventory by the holding cost.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
130.
The materials manager for a billiard ball maker must periodically place orders for
resin, one of the raw materials used in producing billiard balls. She knows that
manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04
per day to carry a kilogram of resin in inventory. She also knows that the order costs
for resin are $100 per order, and that the lead time for delivery is four days. What is
the economic order quantity for resin?
A.
B.
C.
D.
E.
50 kilograms
100 kilograms
250 kilograms
500 kilograms
1,000 kilograms
Use the basic EOQ formula.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
One important use of inventories in manufacturing is to
decouple operations through the use of work-in-process
inventories.
TRUE
Decoupling operations is an important use of inventories.
2.
The objective of inventory management is to minimize the cost of holding inventory.
FALSE
The objective of inventory management is to allow satisfactory customer service while
keeping costs down.
3.
A retail store that carries twice as much inventory as its competitor will provide twice
the customer service level.
FALSE
There is a limit to how high service level can go; if the competitor's service level is 90
percent, the retailer can't double that.
4.
The overall objective of inventory management is to achieve satisfactory levels of
customer service while keeping inventory costs reasonable.
TRUE
This is the overall objective of inventory management.
5.
The two main concerns of inventory control relate to the costs and the level of
customer service.
TRUE
These are the essential facets of inventory control.
6.
To provide satisfactory levels of customer service while keeping inventory costs within
reasonable bounds, two fundamental decisions must be made about inventory: the
timing and the size of orders.
TRUE
These are the fundamental decisions regarding inventory control.
7.
In the EOQ formula, holding costs under 10 percent are expressed as percentages,
above 10 percent are expressed as annual unit costs.
FALSE
Holding costs are expressed in monetary terms, whether as a set value or as a
percentage of the per-unit cost.
8.
DVD recorders would be an example of independent-demand items.
TRUE
Components of the DVD recorders would be dependent-demand items.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 13-11 Describe reorder point models and solve typical problems.
Level of Difficulty: 2 Medium
Topic: Reorder Point Ordering
10.
An example of inventory holding cost is the cost of moving goods to temporary
storage after receipt from a supplier.
FALSE
These are ordering costs.
11.
Decoupling operations applies to the railroad industry.
FALSE
Decoupling refers to buffering operations in manufacturing.
12.
9.
Interest, insurance, and opportunity costs are all associated with holding costs.
TRUE
Reorder point models are primarily used for
dependent-demand items.
These are holding costs.
FALSE
Reorder point models are primarily used for
independent-demand items.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 1 Easy
Topic: Requirements for Effective Inventory Management
13.
The A-B-C approach involves classifying inventory items by unit cost, with expensive
items classified as A items and low-cost items classified as C items.
FALSE
The A-B-C approach classifies inventory according to some measure of importance.
14.
An inventory buffer adds value and lowers cost in all supply chains.
FALSE
Many buffers increase costs across supply chains.
15.
In the A-B-C approach, C items typically represent about 15 percent of the number of
items, but 60 percent of the dollar usage.
FALSE
C items typically represent about 60 percent of the number of items and about 15
percent of the dollar usage.
16.
EOQ inventory models are basically concerned with the timing of orders.
FALSE
EOQ models are concerned with the size of orders.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
17.
The average inventory level is inversely related to order size.
FALSE
The average inventory level is positively related to order size.
18.
The average inventory level and the number of orders per year are inversely related:
As one increases, the other decreases.
TRUE
These are inversely related.
19.
The EOQ should be regarded as an approximate quantity rather than an exact
quantity. Thus, rounding the calculated value is acceptable.
TRUE
The total cost function is relatively flat, so rounding costs little.
20.
Carrying cost is a function of order size; the larger the order, the higher the inventory
carrying cost.
TRUE
Larger order quantities lead to higher inventory carrying cost.
21.
Understocking an inventory item is a sure sign of inadequate inventory control.
FALSE
Having an occasional stockout is not necessarily a sign of inadequate inventory
control.
22.
Annual ordering cost is inversely related to order size.
TRUE
Annual ordering cost decreases as order size increases.
23.
The total cost curve is relatively flat near the EOQ.
TRUE
Thus approximating the EOQ can be a very good solution.
24.
Because price is not a factor in the EOQ formula, quantity discounts will not affect
EOQ calculations.
FALSE
If quantity discounts are offered, the EOQ might vary based on different holding costs.
25.
In the quantity discount model, if holding costs are given as a percentage of unit
price, a graph of the total cost curves will have the same EOQ for each curve.
FALSE
Total cost curves will differ across the price levels.
26.
In the quantity discount model, the optimum quantity will always be found on the
lowest total cost curve.
FALSE
The optimum quantity might actually be when the discount is passed up.
27.
ROP models indicate to managers the time between orders.
FALSE
ROP models indicate when, with regard to on-hand inventory, orders should be
placed.
28.
When to order can be calculated by the ROP and expressed as a quantity.
TRUE
ROP models indicate when, with regard to on-hand inventory, orders should be
placed.
29.
The rate of demand is an important factor in determining the ROP.
TRUE
The demand rate multiplied by the lead time is a major part of the ROP.
30.
The inventory value of the supply chain exceeds the inventory value of the
organization's work-in-process inventory.
TRUE
There can be raw materials and finished goods inventory at the organization. Other
organizations in the supply chain will have inventories, too.
31.
Safety stock is held because we anticipate future demand.
FALSE
Safety stock is held because we anticipate fluctuations in future demand or in lead
time.
32.
Variability in demand and/or lead time can be compensated for by safety stock.
TRUE
Safety stock can be used to accommodate these.
33.
Solving quality problems can lead to lower inventory levels.
TRUE
Leaning out the organization can be facilitated by solving quality problems.
34.
ROP models assume that demand during lead time is composed of a series of
dependent daily demands.
FALSE
ROP models assume that demand during lead time is composed of a series of
independent daily demands.
35.
Profit margins tend to be inversely related to inventory turns.
TRUE
This is typically the case.
36.
In the fixed-order-interval model, the order size is the same for each order.
FALSE
Order size varies from order to order in a fixed-order-interval model.
37.
The fixed-order-interval model requires a continuous monitoring of inventory levels.
FALSE
The fixed-order-interval model leads to periodic monitoring of inventory levels.
38.
Discrete stocking levels are used when an organization does not want visibility of
inventory levels.
FALSE
Discrete stocking refers to having to stock a discrete number of units.
39.
The fixed-order-interval model requires a larger amount of safety stock than the ROP
model for the same risk of a stockout.
TRUE
Fixed order intervals typically carry more safety stock.
40.
The single-period model can be very helpful in determining when to order.
FALSE
The single-period model helps determine how many to order.
41.
The single-period model can be very helpful in determining how much to order.
TRUE
The single-period model helps determine how many to order.
42.
Monitoring inventory turns over time can be used as a measure of performance.
TRUE
Greater turnover often implies better performance.
43.
A single-period model would be used mainly by organizations going out of business.
FALSE
The single-period model applies to many regularly occurring circumstances.
44.
The basic EOQ model ignores the purchasing cost.
TRUE
Only if quantity discounts are offered does purchasing cost enter into EOQ analysis.
45.
When the item is offered for resale, shortage costs in the single-period model can
include a charge for loss of customer goodwill.
TRUE
Greater loss of goodwill would equate with a higher shortage cost.
46.
In the single-period model, the service level is the probability that demand will not
exceed the stocking level in any period.
TRUE
If demand exceeds the stocking level, a stockout has occurred.
47.
A quantity discount will lower the reorder point.
FALSE
The reorder point is independent of quantity discounts.
48.
It is critical that the exact quantity calculated in the EOQ model be ordered.
FALSE
Because the total cost curve is flat, modest rounding of the EOQ is permissible.
49.
Safety stock eliminates all stockouts.
FALSE
Safety stock only ensures a given likelihood of stockouts.
50.
The calculation of safety stock requires knowledge of demand and lead time
variability.
TRUE
Both of these play a role in the calculation of safety stock.
51.
The two basic issues in inventory are how much to order and when to order.
TRUE
Quantity and timing are the two basic issues in inventory management.
52.
Cycle counting can be used in motorcycle inventory control.
TRUE
Cycle counting can also be used in automobile inventory control.
53.
Using the EOQ model, the higher an item's carrying costs, the more frequently it will
be ordered.
TRUE
As carrying costs increase, the optimal order quantity decreases.
Multiple Choice Questions
54.
A stock or store of goods is called a(n):
A.
B.
C.
D.
E.
bundler.
servicer.
retailer.
supply chain.
inventory.
An inventory is a stock or store of goods.
55.
Which of the following is typically the largest of all inventory costs?
A.
B.
C.
D.
E.
shortage cost
purchase cost
holding cost
ordering cost
pipeline cost
Purchase cost is the amount paid to a vendor or supplier to buy the inventory. It is
typically the largest of all inventory costs.
56.
Even though it is often the case that no cash outflows result when demand exceeds
capacity, __________ can nevertheless be experienced in those circumstances.
A.
B.
C.
D.
E.
foreorder costs
service costs
shortage costs
holding costs
setup costs
Shortage costs result when demand exceeds the supply of inventory on hand. These
costs can include the opportunity cost of not making a sale, loss of customer goodwill,
late charges, backorder costs, and similar costs.
57.
If there are shipping cost economies that result from bundling orders for different
items together, the __________ model becomes a relatively more attractive option.
A.
B.
C.
D.
E.
multi-period
reorder-point
fixed-order-quantity
fixed-order-interval
multi-item
Grouping orders for items from the same supplier can produce savings in shipping
costs, making the fixed-order-interval model more attractive.
58.
Average demand for a particular item is 1,200 units per year. It costs $100 to place an
order for this item, and it costs $24 to hold one unit of this item in inventory for one
year. If the fixed-order-interval model is chosen in this instance, how often (on
average) will this item be ordered?
A.
B.
C.
D.
E.
once a month
once every other month
twice a month
twice every three months
three times every two months
The order interval is found by dividing the EOQ (in this case) 100 by the annual
demand (1,200). In this case that leads to an optimal interval of 1/12 th of a year (or
one month).
59.
Weekly demand for a particular item averages 30 units, with a standard deviation of
4. This item is managed with a fixed-order-interval model. The order interval is three
weeks, and this item has a certain lead time of one week. The desired service level is
97.5 percent. Assume that it is now time to place another order, and there are 43
units on hand. How many units should be ordered?
A.
B.
C.
D.
E.
120
93
136
46
84
Expected demand during protection interval [30*(3 + 1)] + safety stock
[1.96*4*sqrt(3 + 1)] - on hand [43] = 120 + 15.68 - 43 ≈ 93.
60.
Which of the following is not one of the assumptions of the basic EOQ model?
A.
Annual demand requirements are known and constant.
B.
Lead time does not vary.
C.
Each order is received in a single delivery.
D.
Quantity discounts are available.
E. Ordering and holding costs have been estimated reasonably accurately.
In the basic EOQ model, quantity discounts are not available.
61.
Which of the following interactions with vendors would potentially lead to inventory
reductions?
A.
B.
C.
D.
E.
reduced lead times
increased safety stock
less frequent purchases
larger batch quantities
longer order intervals
Reducing lead times would have the effect of reducing safety stock requirements and
therefore reducing inventories.
62.
A nonlinear cost related to order size is the cost of:
A.
B.
C.
D.
E.
interest.
insurance.
taxes.
receiving.
space.
Receiving cost is a nonlinear cost associated with order size.
63.
In a two-bin inventory system, the amount contained in the second bin is equal to
the:
A.
B.
C.
D.
E.
ROP.
EOQ.
amount in the first bin.
optimum stocking level.
safety stock.
The second bin equals the amount needed during lead time in addition to any safety
stock.
64.
When carrying costs are stated as a percentage of unit price, the minimum points on
the total cost curves:
A.
B.
C.
D.
E.
line up.
equal zero.
do not line up.
cannot be calculated.
depend on the percentage assigned.
Curves aren't symmetrical if holding cost differs across price breaks.
65.
Dairy items, fresh fruit, and newspapers are items that:
A.
B.
C.
D.
E.
do not require safety stocks.
cannot be ordered in large quantities.
are subject to deterioration and spoilage.
require that prices be lowered every two days.
have minimal holding costs.
Deterioration and spoilage increase holding costs.
66.
Which of the following is least likely to be included in order costs?
A.
B.
C.
D.
E.
processing vendor invoices for payment
processing purchase order
inspecting incoming goods for quantity
taking an inventory to determine how much is needed
temporary storage of delivered goods
Storage costs are holding costs.
67.
In an A-B-C system, the typical percentage of the number of items in inventory for A
items is about:
A.
B.
C.
D.
E.
10.
30.
50.
70.
90.
Class A items represent a relatively small portion of items.
68.
In the A-B-C classification system, items which account for 15 percent of the total
dollar volume for a majority of the inventory items would be classified as:
A.
B.
C.
D.
E.
A items.
B items.
C items.
A items plus B items.
B items plus C items.
These would be class C items.
69.
In the A-B-C classification system, items which account for 60 percent of the total
dollar volume for few inventory items would be classified as:
A.
B.
C.
D.
E.
A items.
B items.
C items.
A items plus B items.
B items plus C items.
These would be class A items.
70.
The purpose of cycle counting is to:
A.
count all the items in inventory.
B.
count bicycles and motorcycles in inventory.
C. reduce discrepancies between inventory records and actual quantities.
D.
reduce theft.
E.
count 10 percent of the items each month.
Cycle counting is intended to improve inventory record accuracy.
71.
The EOQ model is most relevant for which one of the following?
A.
B.
C.
D.
E.
ordering items with dependent demand
determination of safety stock
ordering perishable items
determining fixed-interval order quantities
determining fixed order quantities
The EOQ is a fixed-quantity approach.
72.
Which is not a true assumption in the EOQ model?
A.
B.
C.
D.
E.
Production rate is constant.
Lead time does not vary.
No more than three items are involved.
Usage rate is constant.
No quantity discounts.
EOQ can be used across multiple items.
73.
In a supermarket, a vendor's restocking the shelves every Monday morning is an
example of:
A.
B.
C.
D.
E.
safety stock replenishment.
economic order quantities.
reorder points.
fixed order intervals.
blanket ordering.
This would be a weekly interval model.
74.
A cycle count program will usually require that A items be counted:
A.
B.
C.
D.
E.
daily.
once a week.
monthly.
quarterly.
more often than annually.
Class A items are counted more frequently.
75.
A risk avoider would want ______ safety stock.
A.
B.
C.
D.
E.
less
more
the same
zero
50 percent
Greater risk aversion is associated with more safety stock.
76.
In the basic EOQ model, if annual demand doubles, the effect on the EOQ is:
A.
B.
C.
D.
E.
It doubles.
It is four times its previous amount.
It is half its previous amount.
It is about 70 percent of its previous amount.
It increases by about 40 percent.
The EOQ does not increase linearly with demand.
77.
In the basic EOQ model, if lead time increases from five to 10 days, the EOQ will:
A.
double.
B.
increase, but not double.
C.
decrease by a factor of 2.
D.
remain the same.
E. increase, but more information is needed to calculate exactly how much.
The EOQ is independent of lead time.
78.
In the basic EOQ model, an annual demand of 40 units, an ordering cost of $5, and a
holding cost of $1 per unit per year will result in an EOQ of:
A.
B.
C.
D.
E.
20.
square root of 200.
Use the base EOQ formula.
200.
400.
600.
79.
In the basic EOQ model, if D = 60 per month, S = $12, and H = $10 per unit per
month, EOQ is:
A.
B.
C.
D.
E.
10.
12.
24.
72.
144.
Use the base EOQ formula.
80.
In the basic EOQ model, if annual demand is 50, carrying cost is $2, and ordering cost
is $15, EOQ is approximately:
A.
B.
C.
D.
E.
11.
20.
24.
28.
375.
Use the base EOQ formula.
81.
Which of the following is not true for the economic production quantity model?
A.
B.
C.
D.
E.
Usage rate is constant.
Production rate exceeds usage rate.
Run size exceeds maximum inventory.
There are no ordering or setup costs.
Average inventory is one-half maximum inventory.
There are ordering or setup costs in the EPQ model.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 13-09 Describe the economic production quantity model and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
82.
Given the same demand, setup/ordering costs, and carrying costs, the EPQ calculated
using incremental replenishment will be ____________ if instantaneous replenishment
was assumed.
A.
B.
C.
D.
E.
greater than the EOQ
equal to the EOQ
smaller than the EOQ
greater than or equal to the EOQ
smaller than or equal to the EOQ
The EPQ will be larger than the EOQ.
83.
The introduction of quantity discounts will cause the optimum order quantity to be:
A.
B.
C.
D.
E.
smaller.
unchanged.
greater.
smaller or unchanged.
unchanged or greater.
Quantity discounts cannot make the optimum quantity be smaller.
84.
A fill rate is the percentage of _____ filled by stock on hand.
A.
B.
C.
D.
E.
shipments
demand
inventory
safety stock
lead time
The fill rate is the percentage of demand filled directly from on-hand inventory.
85.
In the quantity discount model, with carrying cost stated as a percentage of unit
purchase price, in order for the EOQ of the lowest curve to be optimum, it must:
A.
B.
C.
D.
E.
have the lowest total cost.
be in a feasible range.
be to the left of the price break quantity for that price.
have the largest quantity compared to other EOQs.
have smaller ordering costs than the others.
If not feasible, that quantity will have to be adjusted upward and then total cost
calculated.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 13-10 Describe the quantity discount model and solve typical problems.
Level of Difficulty: 3 Hard
Topic: How Much to Order: Economic Order Quantity Models
86.
Which one of the following is not generally a determinant of the reorder point?
A.
B.
C.
D.
E.
rate of demand
length of lead time
lead time variability
stockout risk
purchase cost
Purchase cost does not enter into reorder point calculations.
87.
If no variations in demand or lead time exist, the ROP will equal:
A.
B.
C.
D.
E.
the EOQ.
expected usage during lead time.
safety stock.
the service level.
the EOQ plus safety stock.
The ROP will be the demand rate times the lead time.
88.
If average demand for an inventory item is 200 units per day, lead time is three days,
and safety stock is 100 units, the reorder point is:
A.
B.
C.
D.
E.
100
200
300
600
700
units.
units.
units.
units.
units.
The ROP will be the safety stock added to the product of the demand rate and the
lead time.
89.
Which one of the following is implied by a lead time service level of 95 percent?
A. Approximately 95 percent of demand during lead time will be satisfied.
B. Approximately 95 percent of inventory will be used during lead time.
C. The probability is .95 that demand during lead time will exactly equal the amount
on hand at the beginning of lead time.
D. The probability is .95 that demand during lead time will not exceed the amount on
hand at the beginning of lead time.
E. The probability is .95 that the order will arrive after the on-hand inventory is
exhausted.
A stockout only occurs if demand during lead time exceeds the ROP.
90.
Which one of the following is implied by an annual service level of 95 percent?
A.
B.
C.
D.
E.
Approximately 95 percent of demand during lead time will be satisfied.
The probability is .95 that demand will exceed supply during lead time.
The probability is .95 that demand will equal supply during lead time.
The probability is .95 that demand will not exceed supply during lead time.
Approximately 95 percent of all demand will actually be satisfied directly from onhand inventory.
The annual service level is usually greater than the cycle service level, and thus the
risk of a stockout during lead time is much smaller than 5 percent.
91.
Daily usage is exactly 60 gallons per day. Lead time is normally distributed with a
mean of 10 days and a standard deviation of 2 days. What is the standard deviation of
demand during lead time?
A.
B.
C.
D.
E.
60 times 2
60 times the square root of 2
60 times the square root of 10
60 times 10
10 times the square root of 2
The standard deviation of demand during lead time is the square root of squared
demand times the squared standard deviation of lead time.
92.
Lead time is exactly 20 days long. Daily demand is normally distributed with a mean
of 10 gallons per day and a standard deviation of 2 gallons. What is the standard
deviation of demand during lead time?
A.
B.
C.
D.
E.
20 times 2
20 times 10
2 times the square root of 20
2 times the square root of 10
400 times the square root of 10
The standard deviation of demand during lead time equals the daily standard
deviation of demand times the square root of the lead time.
93.
All of the following are possible reasons for using the fixed-order-interval model
except:
A.
supplier policy encourages use.
B.
grouping orders can save in shipping costs.
C. the required safety stock is lower than with an EOQ/ROP model.
D. it is suited to periodic checks of inventory levels rather than continuous
monitoring.
E.
continuous monitoring is not practical.
Safety stock is higher in a fixed-order-interval model.
94.
Which of these products would be most apt to involve the use of a single-period
model?
A.
B.
C.
D.
E.
gold coins
hammers
fresh fish
calculators
frozen corn
The perishability of fresh fish makes it more appropriate for a single-period model.
95.
In a single-period model, if shortage and excess costs are equal, then the optimum
service level is:
A.
B.
C.
D.
E.
0.
.33.
.50.
.67.
.75.
The ratio of shortage cost to shortage plus excess cost is .5.
96.
In a single-period model, if shortage cost is four times excess cost, then the optimum
service level is ___ percent.
A.
B.
C.
D.
E.
100
80
60
40
20
The ratio of shortage cost to shortage plus excess cost is .8.
97.
In the single-period model, if excess cost is double the shortage cost, the approximate
stockout risk, assuming an optimum service level, is ___ percent.
A.
B.
C.
D.
E.
100
67
50
33
5
The ratio of shortage cost to shortage plus excess cost is .67.
98.
In a single-period inventory situation, the probabilities that demand will be 1, 2, 3, or
4 units are .3, .3, .2, and .2, respectively. If two units are stocked, what is the
probability of selling both of them?
A.
B.
C.
D.
E.
.5
.6
.7
.8
.9
Both units will be sold if demand is for 2, 3, or 4 units.
99.
The management of supply chain inventories focuses on:
A.
B.
C.
D.
E.
internal inventories.
external inventories.
both internal and external inventories.
safety stock elimination.
optimizing reorder points.
Supply chain inventory involves both internal and external inventories.
100.
An operations strategy for inventory management should work toward:
A.
B.
C.
D.
E.
increasing lot sizes.
decreasing lot sizes.
increasing safety stocks.
decreasing service levels.
increasing order quantities.
If lot sizes can be reduced, operations become leaner.
101.
Cycle stock inventory is intended to deal with:
A.
B.
C.
D.
E.
excess costs.
shortage costs.
stockouts.
expected demand.
quantity discounts.
Cycle stock is intended to deal with expected demand, while safety stock is intended
to reduce stockouts resulting from demand uncertainty.
102.
An operations strategy which recognizes high carrying costs and reduces ordering
costs will result in:
A.
B.
C.
D.
E.
unchanged order quantities.
slightly decreased order quantities.
greatly decreased order quantities.
slightly increased order quantities.
greatly increased order quantities.
Processes will be leaned, leading to smaller order quantities.
103.
The need for safety stocks can be reduced by an operations strategy which:
A.
B.
C.
D.
E.
increases lead time.
increases lead time variability.
increases lot sizes.
decreases ordering costs.
decreases lead time variability.
Reduced lead time variability will reduce the size of safety stocks.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 13-11 Describe reorder point models and solve typical problems.
Level of Difficulty: 2 Medium
Topic: Operations Strategy
104.
If average demand for an item is 20 units per day, safety stock is 50 units, and lead
time is four days, the ROP will be:
A.
B.
C.
D.
E.
20.
50.
70.
80.
130.
Multiply the demand rate by the lead time and add the safety stock.
105.
With an A-B-C system, an item that had a high demand but a low annual dollar volume
would probably be classified as:
A.
B.
C.
A.
B.
C.
Low-dollar-volume items tend to be classified as C items.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 13-07 Describe the A-B-C approach and explain how it is useful.
Level of Difficulty: 2 Medium
Topic: Requirements for Effective Inventory Management
106.
The fixed-order-interval model would be most likely to be used for this situation:
A. A company has switched from mass production to lean production.
B.
Production is done in batches.
C. Spare parts are ordered when a new machine is purchased.
D.
Grouping orders can save shipping costs.
E.
Demand is highly variable
If ordering costs can be saved by grouping orders, the fixed-order-interval model is
especially attractive.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 13-05 Explain periodic and perpetual review systems.
Level of Difficulty: 3 Hard
Topic: How Much to Order: Fixed-Order-Interval Model
107.
Which item would be least likely to be ordered under a fixed-order-interval system?
A.
B.
C.
D.
textbooks at a college bookstore
auto parts at an assembly plant
cards at a gift shop
canned peas at a supermarket
Auto parts at an assembly plant would be unlikely candidates for a fixed-order-interval
system.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 13-12 Describe situations in which the fixed-order interval model is appropriate; and solve
typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Fixed-Order-Interval Model
108.
Which one of these would not be a factor in determining the reorder point?
A.
B.
C.
D.
E.
the EOQ
the lead time
the variability of demand
the demand or usage rate
all are factors
The ROP is independent of the EOQ.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 13-11 Describe reorder point models and solve typical problems.
Level of Difficulty: 3 Hard
Topic: Reorder Point Ordering
109.
A manufacturer is contemplating a switch from buying to producing a certain item.
Setup cost would be the same as ordering cost. The production rate would be about
double the usage rate. Compared to the EOQ, the economic production quantity
would be approximately:
A.
B.
C.
D.
E.
the same.
20 percent larger.
40 percent larger.
20 percent smaller.
40 percent smaller.
The EPQ will be larger than the EOQ.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 13-09 Describe the economic production quantity model and solve typical problems.
Level of Difficulty: 3 Hard
Topic: How Much to Order: Economic Order Quantity Models
110.
A manufacturer is contemplating a switch from buying to producing a certain item.
Setup cost would be the same as ordering cost. The production rate would be about
double the usage rate. Compared to the EOQ, the maximum inventory would be
approximately:
A.
B.
C.
D.
E.
70 percent higher.
30 percent higher.
the same.
30 percent lower.
70 percent lower.
Maximum inventory is smaller under an EPQ than an EOQ.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 13-09 Describe the economic production quantity model and solve typical problems.
Level of Difficulty: 3 Hard
Topic: How Much to Order: Economic Order Quantity Models
111.
The manager of the Quick Stop Corner Convenience Store (which never closes) sells
four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer
costs $.80 per six-pack (each case of Stein beer contains four six-packs). Orders arrive
three days from the time they are placed. Daily holding costs are equal to 5 percent of
the cost of the beer.
At what point should he reorder Stein beer?
A.
B.
C.
D.
E.
0 cases remaining
4 cases remaining
12 cases remaining
16 cases remaining
20 cases remaining
Use the basic reorder point with no demand uncertainty.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
112.
The manager of the Quick Stop Corner Convenience Store (which never closes) sells
four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer
costs $.80 per six-pack (each case of Stein beer contains four six-packs). Orders arrive
three days from the time they are placed. Daily holding costs are equal to 5 percent of
the cost of the beer.
If he were to order 16 cases of Stein beer at a time, what would be the length of an
order cycle?
A.
B.
C.
D.
E.
.25 days
3 days
1 day
4 days
20 days
Divide the order quantity by the demand rate to get the length of an order cycle.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
113.
The manager of the Quick Stop Corner Convenience Store (which never closes) sells
four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer
costs $.80 per six-pack (each case of Stein beer contains four six-packs). Orders arrive
three days from the time they are placed. Daily holding costs are equal to 5 percent of
the cost of the beer.
If he were to order 16 cases of Stein beer at a time, what would be the average
inventory level?
A.
B.
C.
D.
E.
4 cases
12 cases
8 cases
20 cases
16 cases
Divide the order quantity by 2.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
114.
The manager of the Quick Stop Corner Convenience Store (which never closes) sells
four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer
costs $.80 per six-pack (each case of Stein beer contains four six-packs). Orders arrive
three days from the time they are placed. Daily holding costs are equal to 5 percent of
the cost of the beer.
If he were to order 16 cases of Stein beer at a time, what would be the daily total
inventory costs, EXCLUDING the cost of the beer?
A.
B.
C.
D.
E.
$2.00
$4.00
$1.28
$3.28
$2.56
Multiply the average inventory by the holding cost.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
115.
The manager of the Quick Stop Corner Convenience Store (which never closes) sells
four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer
costs $.80 per six-pack (each case of Stein beer contains four six-packs). Orders arrive
three days from the time they are placed. Daily holding costs are equal to 5 percent of
the cost of the beer.
What is the economic order quantity for Stein beer?
A.
B.
C.
D.
E.
11
14
20
32
8 cases
cases
cases
cases
cases
Use the basic EOQ formula.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
116.
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni
each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and
carrying costs are 4 cents per pound per day. Lead time for each order is three days,
and the pepperoni itself costs $3.00 per pound. At what point should she reorder
pepperoni?
A.
B.
C.
D.
E.
20 pounds remaining
40 pounds remaining
60 pounds remaining
80 pounds remaining
100 pounds remaining
Multiply the demand rate by the lead time.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-11 Describe reorder point models and solve typical problems.
Level of Difficulty: 2 Medium
Topic: Reorder Point Ordering
117.
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni
each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and
carrying costs are 4 cents per pound per day. Lead time for each order is three days,
and the pepperoni itself costs $3.00 per pound. If she were to order 80 pounds of
pepperoni at a time, what would be the length of an order cycle?
A.
B.
C.
D.
E.
0 days
0.25 days
3 days
4 days
5 days
Divide the order quantity by the demand rate.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
118.
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni
each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and
carrying costs are 4 cents per pound per day. Lead time for each order is three days,
and the pepperoni itself costs $3.00 per pound. If she were to order 80 pounds of
pepperoni at a time, what would be the average inventory level?
A.
B.
C.
D.
E.
20 pounds
40 pounds
60 pounds
80 pounds
100 pounds
Divide the order quantity by 2.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
119.
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni
each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and
carrying costs are 4 cents per pound per day. Lead time for each order is three days,
and the pepperoni itself costs $3.00 per pound. If she were to order 80 pounds of
pepperoni at a time, what would be the total daily costs, including the cost of the
pepperoni?
A.
B.
C.
D.
E.
$60.00
$63.20
$64.00
$64.10
$65.00
Add the holding cost to the ordering cost and the cost of the pepperoni.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
120.
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni
each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and
carrying costs are 4 cents per pound per day. Lead time for each order is three days,
and the pepperoni itself costs $3.00 per pound. What is the economic order quantity
for pepperoni?
A.
B.
C.
D.
E.
20 pounds
40 pounds
60 pounds
80 pounds
100 pounds
Use the basic EOQ formula.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
121.
The Operations Manager for Shadyside Savings & Loan orders cash from her home
office for her very popular "BIG BUCKS" automated teller machine, which only
dispenses $100 bills. She estimates that this machine dispenses an average of 12,500
bills per month, and that carrying a bill in inventory costs 10 percent of its value
annually. She knows that each order for these bills costs $300 for clerical and armored
car delivery costs, and that order lead time is six days. Assuming a 30-day month, at
what point should bills be reordered?
A.
B.
C.
D.
E.
0 bills remaining
417 bills remaining
2,500 bills remaining
10,000 bills remaining
12,500 bills remaining
Multiply the demand rate by the lead time.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-11 Describe reorder point models and solve typical problems.
Level of Difficulty: 2 Medium
Topic: Reorder Point Ordering
122.
The Operations Manager for Shadyside Savings & Loan orders cash from her home
office for her very popular "BIG BUCKS" automated teller machine, which only
dispenses $100 bills. She estimates that this machine dispenses an average of 12,500
bills per month, and that carrying a bill in inventory costs 10 percent of its value
annually. She knows that each order for these bills costs $300 for clerical and armored
car delivery costs, and that order lead time is six days. Assuming a 30-day month, if
she were to order 6,000 bills at a time, what would be the length of an order cycle?
A.
B.
C.
D.
E.
.48 days
2.08 days
6 days
8.4 days
14.4 days
Divide the order quantity by the demand rate.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
123.
The Operations Manager for Shadyside Savings & Loan orders cash from her home
office for her very popular "BIG BUCKS" automated teller machine, which only
dispenses $100 bills. She estimates that this machine dispenses an average of 12,500
bills per month, and that carrying a bill in inventory costs 10 percent of its value
annually. She knows that each order for these bills costs $300 for clerical and armored
car delivery costs, and that order lead time is six days. If she were to order 6,000 bills
at a time, what would be the dollar value of the average inventory level?
A.
B.
C.
D.
E.
$3,000
$6,000
$12,500
$300,000
$600,000
Divide the order quantity by 2.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
124.
The Operations Manager for Shadyside Savings & Loan orders cash from her home
office for her very popular "BIG BUCKS" automated teller machine, which only
dispenses $100 bills. She estimates that this machine dispenses an average of 12,500
bills per month, and that carrying a bill in inventory costs 10 percent of its value
annually. She knows that each order for these bills costs $300 for clerical and armored
car delivery costs, and that order lead time is six days. If she were to order 6,000 bills
at a time, what would be the average monthly total costs, EXCLUDING the value of the
bills?
A.
B.
C.
D.
E.
$625
$1,250
$2,500
$3,125
$37,500
Add the ordering and holding costs.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
125.
The Operations Manager for Shadyside Savings & Loan orders cash from her home
office for her very popular "BIG BUCKS" automated teller machine, which only
dispenses $100 bills. She estimates that this machine dispenses an average of 12,500
bills per month, and that carrying a bill in inventory costs 10 percent of its value
annually. She knows that each order for these bills costs $300 for clerical and armored
car delivery costs, and that order lead time is six days. What is the economic order
quantity?
A.
B.
C.
D.
E.
600 bills
3,000 bills
949 bills
6,215 bills
12,500 bills
Use the basic EOQ formula.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
126.
The materials manager for a billiard ball maker must periodically place orders for
resin, one of the raw materials used in producing billiard balls. She knows that
manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04
per day to carry a kilogram of resin in inventory. She also knows that the order costs
for resin are $100 per order, and that the lead time for delivery is four days. At what
point should resin be reordered?
A.
B.
C.
D.
E.
0 kilograms remaining
50 kilograms remaining
200 kilograms remaining
400 kilograms remaining
500 kilograms remaining
Multiply the demand rate by the lead time.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-11 Describe reorder point models and solve typical problems.
Level of Difficulty: 2 Medium
Topic: Reorder Point Ordering
127.
The materials manager for a billiard ball maker must periodically place orders for
resin, one of the raw materials used in producing billiard balls. She knows that
manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04
per day to carry a kilogram of resin in inventory. She also knows that the order costs
for resin are $100 per order, and that the lead time for delivery is four days. If order
size was 1,000 kilograms of resin, what would be the length of an order cycle?
A.
B.
C.
D.
E.
.05 days
4 days
16 days
20 days
50 days
Divide the order quantity by the demand rate.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
128.
The materials manager for a billiard ball maker must periodically place orders for
resin, one of the raw materials used in producing billiard balls. She knows that
manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04
per day to carry a kilogram of resin in inventory. She also knows that the order costs
for resin are $100 per order, and that the lead time for delivery is four days. If the
order size was 1,000 kilograms of resin, what would be the average inventory level?
A.
B.
C.
D.
E.
50 kilograms
200 kilograms
500 kilograms
800 kilograms
1,000 kilograms
Divide the order quantity by 2.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
129.
The materials manager for a billiard ball maker must periodically place orders for
resin, one of the raw materials used in producing billiard balls. She knows that
manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04
per day to carry a kilogram of resin in inventory. She also knows that the order costs
for resin are $100 per order, and that the lead time for delivery is four days. If the
order size was 1,000 kilograms of resin, what would be the daily total inventory costs,
EXCLUDING the cost of the resin?
A.
B.
C.
D.
E.
$5
$10
$20
$25
$40
Multiply the average inventory by the holding cost.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
130.
The materials manager for a billiard ball maker must periodically place orders for
resin, one of the raw materials used in producing billiard balls. She knows that
manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04
per day to carry a kilogram of resin in inventory. She also knows that the order costs
for resin are $100 per order, and that the lead time for delivery is four days. What is
the economic order quantity for resin?
A.
B.
C.
D.
E.
50 kilograms
100 kilograms
250 kilograms
500 kilograms
1,000 kilograms
Use the basic EOQ formula.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 13-08 Describe the basic EOQ model and its assumptions and solve typical problems.
Level of Difficulty: 2 Medium
Topic: How Much to Order: Economic Order Quantity Models
