# Quiz 8: Inventory Models

Business

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Q 2Q 2

In the continuous review system, order quantity tends to be fixed, and order time is variable.This is reversed in a periodic review system.

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Q 4Q 4

The closer the unit salvage value is to the per unit item cost, the higher the optimal order quantity will be when using the single period inventory model.

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Q 5Q 5

In the single period inventory model, the optimal service level is the proportion of total customer demand that will be satisfied in any given period.

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Q 6Q 6

Excess inventory should be avoided if at all possible, since it must be either sold at a discount, sold for salvage, or dumped.

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Q 7Q 7

Insufficient inventory should be avoided if at all possible since it can result in lost business.

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Q 9Q 9

Holding costs and procurement/manufacturing costs are both functions of the unit cost of the item.

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Q 10Q 10

In the calculation of economic order quantity, manufacturing costs for items produced in-house include the costs of setting up the production line.

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Q 12Q 12

The inventory holding cost is proportional to the order quantity, but the annual ordering cost is inversely proportional to the order quantity.Annual procurement costs do not depend on the order quantity.

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Q 13Q 13

Quantity discounts reduce the unit price.Inventory costs are always reduced by opting for a quantity discount.

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Q 14Q 14

Economic order quantity for production is optimal for a single product.The solution for several products sharing a production line requires computing an economic order quantity for each product.

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Q 16Q 16

Which of the following is not a main category of cost in inventory models?
A)Customer satisfaction.
B)Production/procurement.
C)Quality/inspection.
D)Holding/carrying.

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Multiple Choice

Q 17Q 17

The strongest factor influencing the choice of inventory model is the:
A)pattern of demand.
B)value of the inventoried item.
C)presence or absence of quantity discounts.
D)presence or absence of safety stocks.

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Multiple Choice

Q 18Q 18

"Shrinkage" of inventory includes:
A)reduced unit value.
B)theft.
C)obsolescence.
D)misplacement.

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Multiple Choice

Q 19Q 19

In the ABC classification system, "C" items typically account for:
A)roughly half the annual production value.
B)around half the number of inventory SKU's.
C)approximately one-third of annual inventory usage.
D)the smallest share of the total inventory.

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Multiple Choice

Q 20Q 20

In the economic order quantity (EOQ) model, if the holding cost and the ordering cost both double, the value of Q* will:
A)decrease by 50%.
B)remain unchanged.
C)double.
D)quadruple.

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Multiple Choice

Q 21Q 21

When compared with the maximum inventory level of the economic order quantity (EOQ) model, the maximum inventory level of the production lot size model is:
A)smaller.
B)greater.
C)roughly equal.
D)unrelated.

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Multiple Choice

Q 22Q 22

In the basic economic order quantity (EOQ) model, at Q* the estimated total annual holding cost:
A)is less than the estimated total annual ordering cost.
B)equals the estimated total annual ordering cost.
C)is greater then the estimated total annual ordering cost.
D)bears no necessary relationship to estimated total annual ordering cost.

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Multiple Choice

Q 23Q 23

In the basic economic order quantity (EOQ) model, if monthly demand is a constant 430 units, the order quantity is 144 (12 dozen), and the firm operates during fifty five-day weeks a year, the cycle time will be approximately:
A)7 working days.
B)7 calendar days.
C)84 working days.
D)cannot be determined with the data provided.

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Multiple Choice

Q 24Q 24

For the production lot size model to be appropriate, the relationship between D, annual demand, and P, maximum annual production rate, must be:
A)D > P.
B)D = P.
C)D < P.
D)no necessary relationship exists.

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Multiple Choice

Q 25Q 25

In the basic economic order quantity (EOQ) model, a doubling of estimated annual demand would lead to what change in Q*?
A)A doubling.
B)No change.
C)More than a 50% decrease.
D)Less than a 50% increase.

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Multiple Choice

Q 26Q 26

In the production lot size model:
A)the maximum inventory position, M, equals Q*.
B)additions to, and withdrawals from, inventory occur at equal rates.
C)at Q*, annual production setup costs equal annual holding costs.
D)at Q*, annual production setup costs exceed annual holding costs.

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Multiple Choice

Q 27Q 27

In the planned shortage model, a zero value for R, the reorder point, means:
A)reorder only when a customer appears.
B)instantaneous inventory replenishment.
C)reorder when the back-order position is zero.
D)reorder in a quantity equal to the back-order position.

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Multiple Choice

Q 28Q 28

When comparing the safety stock of the cycle service level (SSc) approach with the safety stock level of the unit service level (SSu) approach, other things being equal:
A)SSc > SSu.
B)SSc = SSu.
C)SSc < SSu.
D)no necessary relationship exists.

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Multiple Choice

Q 29Q 29

In the single period inventory model:
A)salvage value is always positive.
B)goodwill (shortage) costs are always less than the item cost.
C)goodwill (shortage) costs are always less than the salvage value.
D)salvage value is always less than the selling price.

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Multiple Choice

Q 30Q 30

In the single period inventory model, if the unit salvage value equals the unit cost of the good, the optimal service level will be:
A)0.
B)50%.
C)100%.
D)unknown.

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Multiple Choice

Q 31Q 31

In the single period inventory model, customer demand is always assumed to be:
A)normally distributed.
B)uniformly distributed.
C)of unknown distribution.
D)stochastic.

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Multiple Choice

Q 32Q 32

In the single period inventory model, when the goodwill cost increases:
A)the optimal order quantity will decrease.
B)the optimal order quantity will increase.
C)the mean demand will increase.
D)the mean demand will decrease.

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Multiple Choice

Q 33Q 33

In the single period inventory model, the probability distribution for customer demand:
A)must be discrete.
B)is directly derived from sales data.
C)may be continuous.
D)is generally assumed to be uniform.

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Multiple Choice

Q 34Q 34

Opportunity cost (or shrinkage or obsolescence) is an example of:
A)holding cost.
B)order/setup cost.
C)customer satisfaction cost.
D)procurement/manufacturing cost.

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Multiple Choice

Q 35Q 35

A two bin system is an example of a:
A)(R,M) policy.
B)(R,Q) policy.
C)(T,M) policy.
D)(T,R,M) policy.

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Q 39Q 39

In the production lot size model, the maximum inventory level (M) is lower than in the EOQ model.Why? By how much?

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Q 40Q 40

If you compare EOQ with the production lot size model, the optimal order quantity and the holding costs differ by the factor

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Q 41Q 41

Your major competitor, Grause's Sofa Factory, just went out of business with a large number of unfilled backorders.Many Grause's customers have lost their deposits.Your sales staff is creating a marketing campaign targeting Grause's customer base.How might you temporarily modify the numbers used in your own planned shortage model?

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Q 42Q 42

In the planned shortage model, what is the difference between annual time-dependent shortage cost and annual time-independent shortage cost?

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Q 43Q 43

When employing A,B,C inventory classification, would you use EOQ models for type C items? Explain.

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Q 47Q 47

Garner is your sole supplier of gremmels, a key component in the Farfel unit your company produces and sells.Formerly, you ordered from Garner 800 units monthly, to meet an annual need (demand) for 9600 units.Purchase cost was $3.00 per unit.Now, however, Garner is offering discounts of 7% on orders of 1500 or more, and 15% on orders of 3000 units or more.Orders are placed and filled at a cost of $32 per order.Inventory holding cost is estimated at 20% of purchase cost, per item, per year.Under the new discount plan, what is your best strategy?

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Q 48Q 48

The annual demand for inventory item 67J is 6000 SKU's.Order lead time is 6 workdays, and the firm's "year" is 300 days (6 workdays weekly, times 50 weeks).Empirical analysis indicates that the daily standard deviation of SKU demand is 4 units.If the firm desires only a 5% chance of a stockout, during any inventory cycle:

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Q 49Q 49

A distributor of consumer appliances wants to calculate the reorder point for a popular model of microwave oven.It operates 365 days a year, and wishes to maintain a 98% unit service level.Other

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Q 50Q 50

Anderson Supply Company sells windows and French doors.Its most popular French door model is a six foot unit, which it purchases from Marvel doors.The units cost Anderson $500 each and sell for $700 each.Anderson uses a 22% annual holding cost rate and the cost of placing an order with Marvel for the doors is $200.If Anderson runs out of stock of doors it estimates that it incurs a goodwill cost of $15 per unit for each week a customer must wait for the door.The fixed administrative cost to process a backorder is

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Q 52Q 52

Monthly sales of Better House magazine at Smith's Foods follow a normal distribution with a mean of 140 copies and a standard deviation of 15 copies.The magazine sells at Smith's for $1.25 a copy and costs Smith's $.50 per copy.Unsold copies are repurchased by the publisher for $.10 per copy.Smith's management estimates that if it runs out of Better House magazine it suffers a goodwill loss of approximately $.80 for each unsatisfied customer.

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Q 53Q 53

Below is the published all units discount schedule for cases of Brightall lightbulbs, with breakpoints at 100, 250, and 500.

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