Question 1

Cycle counting is a physical inventory-taking technique in which inventory is counted on a frequent basis rather than once or twice a year.

Accepted Answer

Cycle counting is a physical inventory-taking technique in which inventory is counted on a frequent basis, such as daily or weekly, rather than once or twice a year.

Question 2

Safety stock can be computed when using the fixed-order quantity inventory model by multiplying a "z" value representing the number of standard deviations to achieve a service level or probability by the standard deviation of periodic demand.

Accepted Answer

This statement is correct. The safety stock in the fixed-order quantity inventory model can be calculated by multiplying the z-value for the desired service level by the standard deviation of demand during the lead time.

Question 3

Using the probability approach we assume that the demand over a period of time is normally distributed.

Accepted Answer

The probability approach assumes that demand is normally distributed over a period of time.

Question 4

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

Accepted Answer

Price-break models actually deal with the fact that the selling price of an item generally decreases as the order size increases, offering discounts for bulk purchases.

Question 5

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

Accepted Answer

This statement is true. In a price break model, different prices may apply to different order quantities, so it may be necessary to calculate the economic order quantity (EOQ) for each price level and compare the total cost of each option to find the lowest-cost order quantity. It is possible that the lowest-cost quantity at one price level is not feasible due to volume limitations or other constraints, so checking the feasibility of each option is important.

Question 6

The "sawtooth effect," named after turn-around artist Al "chainsaw" Dunlap, is the severe reduction of inventory and service levels that occurs when a firm has gone through a hostile takeover.

Accepted Answer

The "sawtooth effect" refers to fluctuations in inventory levels due to inconsistent ordering patterns, not specifically related to hostile takeovers or Al "chainsaw" Dunlap.

Question 7

Fixed-time period inventory models generate order quantities that vary from time period to time period, depending on the usage rate.

Accepted Answer

This statement is true. Fixed-time period inventory models use a predetermined ordering interval (such as every two weeks) and order enough inventory to last until the next order. The order quantity will vary depending on how much inventory was used during that time period.

Question 8

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

Accepted Answer

In a fixed-order quantity inventory model with known demand, the reorder point is simply the point at which the inventory level reaches the safety stock level plus the order quantity. However, in a model with uncertain demand, the reorder point must also take into account the variability in demand and the lead time. Therefore, the computation of the reorder point is different in the two models.

Question 9

Some inventory situations involve placing orders to cover only one demand period or to cover short-lived items at frequent intervals.

Accepted Answer

This statement is true. Some inventory situations may require ordering only enough inventory to cover a specific demand period or frequent intervals for short-lived items. Examples include perishable goods or seasonal items with a short sales period.

Question 10

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

Accepted Answer

This is the definition of optimal inventory decision using marginal analysis.

Question 11

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

Accepted Answer

In a price break model of lot sizing, the economic order quantity (EOQ) may vary at different prices due to the quantity discount offered. Therefore, to determine the lowest-cost order quantity, the EOQ needs to be calculated for each possible price.

Question 12

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

Accepted Answer

The sawtooth effect is a phenomenon where inventory levels in a supply chain increase and decrease over time, creating a pattern that resembles a sawtooth. The name comes from the jagged shape of the graph that represents inventory levels over time.

Question 13

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

Accepted Answer

Fixed-order quantity systems trigger an immediate order, not a delayed one, when inventory reaches a predetermined reorder point, assuming a constant and known quantity to be reordered.

Question 14

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

Accepted Answer

Price-break models are specifically designed to address the relationship between order size and selling price, allowing for different prices at different quantities purchased.

Question 15

Safety stock is not necessary in any fixed-time period system.

Accepted Answer

Safety stock is necessary in fixed-time period systems as demand during the lead time may vary, and safety stock helps to buffer against stockouts in these situations.

Question 16

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

Accepted Answer

In the fixed-time period model, the inventory on hand is taken into account to determine the size of the order to be placed with a vendor.

Question 17

Price-break models deal with discrete or step changes in price as order size changes rather than a per-unit change.

Accepted Answer

Price-break models are based on the idea that there are specific quantity thresholds that trigger a change in price, rather than a continuous per-unit change. This allows for easier calculation and prediction of costs for customers who buy larger quantities, and can incentivize them to order more for a better price.

Question 18

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

Accepted Answer

The standard fixed-time period model includes a physical count of inventory at the end of each fixed period to determine the quantity to order for the next period, and does not rely solely on EOQ measures.

Question 19

Safety stock can be defined as the amount of inventory carried in addition to the expected demand.

Accepted Answer

Safety stock is the additional inventory carried to meet unexpected demand, stockouts, or other unforeseen events that may affect the supply chain. It provides a buffer between the anticipated demand and the available inventory to ensure continuity of operations and customer satisfaction.

Question 20

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

Accepted Answer

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

Quiz 17: Inventory Control