# Quiz 13: Inventory Management

Statistics

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Q 2Q 2

Simulation is often viewed as the technique of last resort because it can be applied to situations when there is no applicable quantitative model.

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Q 3Q 3

Because simulation is used to analyze probabilistic problems, it provides information that is used to make a decision versus an optimal solution.

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Q 4Q 4

Simulation is the preferred technique for problems with random variables represented by the probability distributions.

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Q 5Q 5

The Monte Carlo technique selects numbers randomly from a probability distribution for being used in a quantitative model.

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Q 8Q 8

A steady state results, when a simulation is repeated enough times that the random variable being investigated, reaches an average result that remains constant.

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Q 9Q 9

As a simulation model becomes more complex, using a computer application is virtually impossible.

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Q 10Q 10

An advantage of using a computer versus a manual approach, when performing a simulation, is that it often takes only seconds versus hours to reach a steady-state result.

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Q 11Q 11

At a Walmart store, simulation can be used to analyze waiting lines at the check-out stands to determine the required staffing levels.

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Q 12Q 12

Simulation analysis is the preferred method used at hospitals to determine the type of treatment a patient requires.

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Q 13Q 13

Simulation analysis is useful for operational problems that
A) are easy to solve analytically
B) cannot be solved analytically
C) require an optimal solution
D) meet specific analytical criteria

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Q 14Q 14

The ___ technique selects numbers randomly from a probability distribution for being used in a trial run of a simulation.
A) Computer World
B) Monaco
C) steady-state
D) none of the above

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Q 15Q 15

After a sufficient number of simulation runs, a steady state results when the variable being investigated reaches an ___ value that remains constant.
A) optimal
B) average
C) expected
D) estimated

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Q 16Q 16

The weekly demand for a company's product follows the probability distribution below: The expected value, or average, weekly demand is
A) 137.50
B) 142.50
C) 153.75
D) 165.75

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Q 17Q 17

The weekly demand for a company's product follows the probability distribution below: Use the following random numbers to simulate the product's demand for the next five weeks: 72, 27, 93, 17, 47.
If the first random number interval begins with 1, then the total demand for the simulated five-week period is
A) 700
B) 650
C) 625
D) 550

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Q 18Q 18

The weekly demand for a company's product follows the probability distribution below: Use the following random numbers to simulate the product's demand for the next five weeks: 72, 27, 93, 17, 47.
If the first random number interval begins with 1, then the average weekly demand for the simulated five-week period is
A) 137.50
B) 140.00
C) 142.50
D) 152.50

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Multiple Choice

Q 19Q 19

The number of daily calls received by a help desk between the hours of 9:00 a.m. and 10:00 a.m. can be described by the following probability distributions: Based on the distribution of calls above, the expected value, or average number of calls to the help desk between 9:00 a.m. and 10:00 a.m. is
A) 61.5
B) 62.0
C) 62.5
D) 63.0

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Multiple Choice

Q 20Q 20

The number of daily calls received by a help desk between the hours of 9:00 a.m. and 10:00 a.m. can be described by the following probability distributions: Use the following random numbers to simulate the number of calls to the help desk between 9:00 a.m. and 10:00 a.m. for the next five days: 39, 55, 18, 16, 70.
If the first random number interval begins with 1, then the number of calls that would be simulated for day 3 is
A) 50
B) 55
C) 60
D) 65

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Multiple Choice

Q 21Q 21

The number of daily calls received by a help desk between the hours of 9:00 a.m. and 10:00 a.m. can be described by the following probability distributions: Use the following random numbers to simulate the number of calls to the help desk between 9:00 a.m. and 10:00 a.m. for the next five days: 39, 55, 18, 16, 70.
If the first random number interval begins with 1, then the total number of calls received over the simulated five-day period is
A) 375
B) 350
C) 325
D) 300

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Multiple Choice

Q 22Q 22

The number of daily calls received by a help desk between the hours of 9:00 a.m. and 10:00 a.m. can be described by the following probability distributions: Use the following random numbers to simulate the number of calls to the help desk between 9:00 a.m. and 10:00 a.m. for the next five days: 39, 55, 18, 16, 70.
If the first random number interval begins with 1, then the average number of calls received over the simulated five-day period is
A) 63
B) 62
C) 61
D) 60

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Multiple Choice

Q 23Q 23

The weekly capacity measured in machine hours for a small machine shop follows the probability distribution shown below: Based on the probability distributions above, the expected value, or average hours of weekly capacity for the machine shop is
A) 500 hours
B) 490 hours
C) 480 hours
D) 475 hours

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Multiple Choice

Q 24Q 24

The weekly capacity measured in machine hours for a small machine shop follows the probability distributions shown below: Use the following random numbers to simulate weekly capacity for the machine shop for the next five weeks: 93, 31, 71, 8, 6.
If the first random number interval begins with 1, then the minimum capacity for the simulated five-week period is
A) 560.
B) 520.
C) 440.
D) 400.

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Multiple Choice

Q 25Q 25

Which of the following is not a common application for simulations in operations management?
A) waiting lines/service
B) inventory management
C) logistics
D) service standards development

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Multiple Choice

Q 26Q 26

Problems that typically include random variables such as distance, different modes of transportation, and schedules are generally considered _____ problems.
A) production and manufacturing systems
B) logistics
C) service operations
D) environmental and resource analysis

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Q 27Q 27

Problems that require estimates of cash flows resulting from random variables are known as _____ problems.
A) production and manufacturing systems
B) logistics
C) capital investment and budgeting
D) inventory management

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Q 28Q 28

The operations of police departments, post office, and airports are studied in what type of simulation?
A) logistics
B) environmental and resources analysis
C) service operations
D) waiting lines/service

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Multiple Choice

Q 29Q 29

Simulations applied to plant layout or assembly line balancing comprise which type of operational problem?
A) queuing
B) production and manufacturing systems
C) service operations
D) waiting lines/service

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Multiple Choice

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Q 32Q 32

Explain why companies keep inventory and how advances in IT have impacted inventory decisions.

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Q 33Q 33

Discuss the key elements of costs and inventory, and the relationship between inventory costs and customer service.

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Q 34Q 34

Contrast continuous and periodic inventory systems and classify inventory according to the ABC system.

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Q 35Q 35

Use the basic economic order quantity (EOQ) model and the economic production quantity (EPQ) model to calculate optimal order/production quantity and related values in a continuous inventory system.

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Q 37Q 37

Determine the appropriate reorder point in a continuous inventory system based on a target service level.

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Q 41Q 41

Hedging involves buying larger amounts of inventory in anticipation of future price increases.

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Q 44Q 44

The conventional approach to inventory management is to maintain a level of inventory that reflects a compromise between inventory cost and customer service.

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Q 47Q 47

Dependent demand items consist of component parts or materials used in the production process to produce a final product.

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Q 48Q 48

The three basic costs associated with inventory are holding costs, ordering costs and shortage costs.

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Q 55Q 55

As the level of inventory increases to provide better customer service, quality-related customer service costs decrease.

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Q 56Q 56

Continuous inventory systems often incorporate information technology to improve the speed and accuracy of data entry and retrieval.

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Q 57Q 57

The ABC classification system is a method for classifying inventory based on the percentage of total value and the percentage of total quantity.

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Q 58Q 58

Class A items in the ABC classification system require less monitoring and control than Class C items.

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Q 59Q 59

The reorder point is the level of inventory that prompts a new order to be placed in a continuous inventory system.

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Q 60Q 60

The time between orders is variable and the order quantity is constant in the periodic inventory system.

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Q 61Q 61

Continuous inventory systems are primarily intended for lower cost items because they are easier to use requiring fewer resources.

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Q 63Q 63

Periodic inventory systems initiate a new order when the level of inventory falls into the reorder point.

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Q 64Q 64

In ABC analysis, each class of inventory requires different levels of inventory monitoring and control.

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Q 67Q 67

The economic order quantity (EOQ) model determines the optimal order size that minimizes total annual inventory costs.

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Q 69Q 69

The EOQ model determines the optimal order size that minimizes the sum of carrying cost and shortage costs.

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Q 71Q 71

The number of orders can be calculated by dividing the daily demand rate, d, by the order quantity, Q.

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Q 73Q 73

The economic order quantity occurs when the annual carrying cost is equal to the annual ordering cost.

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Q 74Q 74

With the economic order quantity (EOQ) model, the number of orders increases as the order size decreases.

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Q 75Q 75

With the economic order quantity (EOQ) model, increasing the order quantity reduces inventory carrying cost.

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Q 76Q 76

The production quantity model, a variation of the basic EOQ model, assumes non-instantaneous replenishment.

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Q 77Q 77

The quantity discount model evaluates whether using an order size which qualifies for a price discount is always less cost effective than using the economic order quantity.

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Q 78Q 78

A quantity discount is a price discount available if a predetermined number of units is ordered.

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Q 79Q 79

When demand is uncertain, a safety stock is often added to the expected demand during lead time to prevent a stock-out.

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Q 81Q 81

Inventory costs ___ when higher levels of inventory are needed to improve customer service.
A) decrease
B) stay the same
C) increase
D) cannot be estimated

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Multiple Choice

Q 82Q 82

A company may purchase larger amounts of inventory for all the following reasons except
A) to reduce inventory carrying costs.
B) to take advantage of quantity discounts.
C) as a hedge against future price increases.
D) to obtain lower prices purchasing in volume.

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Multiple Choice

Q 83Q 83

Inventory management includes all the following activities except determining
A) the amount of inventory to keep in stock
B) customer demand
C) how much to order
D) when to order

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Q 84Q 84

The ability to meet internal organizational demand in a timely, efficient manner is referred to as which of the following?
A) inventory management
B) supply chain management
C) level of customer service
D) replenishment

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Q 85Q 85

___ demand items are used in the process of producing a final product.
A) Dependent
B) Independent
C) Seasonal
D) Cyclical

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Multiple Choice

Q 86Q 86

Receiving, handling, and shipping costs are examples of
A) shortage costs.
B) carrying costs.
C) ordering costs.
D) none of the above.

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Multiple Choice

Q 87Q 87

In general, as the order size increases
A) ordering costs decrease and carrying costs increase.
B) ordering costs increase and carrying costs decrease.
C) both ordering and carrying costs increase.
D) both ordering and carrying costs decrease.

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Multiple Choice

Q 88Q 88

Which of the following is not considered a form of inventory?
A) items being transported
B) tools and equipment
C) supplies
D) backorders

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Q 89Q 89

Which of the following is not an example of inventory carried to satisfy independent demand?
A) spare parts
B) finished product
C) raw materials
D) All the above satisfy independent demand.

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Multiple Choice

Q 90Q 90

A continuous inventory system is also known as a
A) fixed-time period system
B) fixed-order quantity system
C) fixed-lead time system
D) fixed-amount system

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Multiple Choice

Q 91Q 91

A periodic inventory system is also known as a
A) fixed-time period system
B) fixed-order quantity system
C) fixed-lead time system
D) fixed-amount system

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Multiple Choice

Q 92Q 92

Temporary or permanent loss of sales when demand cannot be met is known as ___.
A) ordering costs
B) shipping costs
C) shortage costs
D) holding costs

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Multiple Choice

Q 93Q 93

The ___ classification system classifies inventory according to its dollar value to the firm.
A) periodic
B) continuous
C) ABC
D) EOQ

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Q 94Q 94

A service level of 95% means there is a 0.95 probability
A) of meeting all demand
B) of a stock-out
C) that supply will exceed demand
D) that demand will be met during the lead time

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Q 95Q 95

Which of the following is not a reason for inventory classification?
A) cost
B) scarcity of parts
C) difficulty of supply
D) uncertain demand

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Q 96Q 96

Which of the following is not an assumption of the EOQ model?
A) Demand rate is known and constant.
B) Shortages are allowed.
C) Lead time is constant.
D) Order quantity is received all at once.

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Multiple Choice

Q 97Q 97

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate. If the cost to order the napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00, then the economic order quantity for napkins is
A) 62,500 boxes
B) 10,000 boxes
C) 5,000 boxes
D) 2,500 boxes

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Multiple Choice

Q 98Q 98

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate. The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the restaurant orders the economic order quantity each time an order is placed, then ___ orders are placed during the year.
A) 13
B) 15
C) 20
D) 25

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Multiple Choice

Q 99Q 99

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate over the 365 days that it is open. The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the restaurant orders the economic order quantity, then the time between orders (order cycle) is
A) 125 days
B) 75.3 days
C) 32.8 days
D) 29.2 days

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Multiple Choice

Q 100Q 100

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate. The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the restaurant orders the economic order quantity, then the total annual inventory cost for napkins is
A) $62,500
B) $5,000
C) $2,500
D) $1250

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Multiple Choice

Q 101Q 101

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate. The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the restaurant orders the economic order quantity, then the average inventory for napkins is
A) 62,500 boxes
B) 31,250 boxes
C) 5,000 boxes
D) 2,500 boxes

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Multiple Choice

Q 102Q 102

Annual demand for a product is 40,000 units. The product is used at a constant rate over the 365 days the company is open every year. The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00. If the company orders according to the economic order quantity (EOQ) formula, then its optimal order size for this product would be
A) 2,000 units
B) 4,000 units
C) 20,000 units
D) 40,000 units

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Multiple Choice

Q 103Q 103

Annual demand for a product is 40,000 units. The product is used at a constant rate over the 365 days the company is open every year. The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00. If the company orders according to the economic order quantity (EOQ) formula, then ___ orders are placed annually.
A) 5
B) 10
C) 15
D) 20

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Multiple Choice

Q 104Q 104

Annual demand for a product is 40,000 units. The product is used at a constant rate over the 365 days the company is open every year. The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00. If the company orders according to the economic order quantity (EOQ) formula, then the time between orders (order cycle time) is
A) 18.25 days
B) 24.33 days
C) 36.5 days
D) 73 days

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Multiple Choice

Q 105Q 105

Annual demand for a product is 40,000 units. The product is used at a constant rate over the 365 days the company is open every year. The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00. If the company orders according to the economic order quantity (EOQ) formula, then its total annual inventory cost for this product would be
A) $100,000
B) $50,000
C) $5,000
D) $2,500

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Multiple Choice

Q 106Q 106

Annual demand for a product is 40,000 units. The product is used at a constant rate over the 365 days the company is open every year. The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00. If the company orders according to the economic order quantity (EOQ) formula, then its average inventory level for this product would be
A) 20,000 units
B) 10,000 units
C) 2,500 units
D) 1,000 units

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Multiple Choice

Q 107Q 107

Which of the following is not an assumption of the EOQ model?
A) Demand is known and constant
B) No shortages are allowed
C) Lead time is determined by quantity ordered
D) Order quantity is received all at once

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Multiple Choice

Q 108Q 108

The economic order quantity is most commonly used for determining how much to order in
A) a periodic inventory system
B) a continuous inventory system
C) an on-demand inventory system
D) none of the above

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Multiple Choice

Q 109Q 109

An inventory system in which an order is gradually received, as inventory is simultaneously being depleted is the
A) economic order quantity model
B) economic production quantity model
C) quantity discount model
D) none of the above

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Multiple Choice

Q 110Q 110

The quantity discount model considers
A) purchase price
B) carrying cost
C) ordering cost
D) all the above

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Q 111Q 111

A discount where the reduced price applies only to those within the discount range is known as a
A) fixed discount
B) all-unit discount
C) incremental discount
D) variable discount

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Q 112Q 112

The Quantity Discount model can be applied to which of the following situation(s)?
A) constant carrying cost only
B) variable carrying cost only
C) both constant and variable carrying costs
D) none of the above

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Multiple Choice

Q 113Q 113

The demand for an electronic component is normally distributed with an average daily demand of 500 units and a standard deviation of 50. The lead-time for the component is 9 days. If a service level of 95% is desired, then the company's reorder point for this component is approximately
A) 3,785 units
B) 4,500 units
C) 4,627units
D) 4,747units

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Multiple Choice

Q 114Q 114

The demand for an electronic component is normally distributed with an average daily demand of 500 units and a standard deviation of 50. The lead time for the component is 9 days. If a service level of 95% is desired, then the company's safety stock for this component is approximately
A) 150 units
B) 247 units
C) 336 units
D) 740 units

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Multiple Choice

Q 115Q 115

The demand for an electronic component is normally distributed with an average daily demand of 500 units and a standard deviation of 50. The lead time for the component is 9 days. If the company sets a reorder point of 4,650 for this component, then its service level is approximately
A) 50%
B) 84%
C) 92%
D) 98%

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Multiple Choice

Q 116Q 116

A product's usage is normally distributed with a weekly average demand of 2,000 units and a weekly standard deviation of 125. The lead time for the product is 4 weeks. If the company would like to have a service level of 90% for this product, then the reorder point is approximately
A) 8,320 units
B) 9,218 units
C) 10,134 units
D) 11,244 units

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Multiple Choice

Q 117Q 117

A product's usage is normally distributed with a weekly average demand of 2,000 units and a weekly standard deviation of 125. The product's lead time is 4 weeks. Currently, the reorder point for this product is 8,200. If the company would like to have a service level of 95% for this product, then
A) it must decrease its safety stock by approximately 412 units
B) it must decrease its safety stock by approximately 212 units
C) it must increase its safety stock by approximately 412 units
D) it must increase its safety stock by approximately 212 units

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Multiple Choice

Q 118Q 118

A buffer added to the inventory on hand during the lead time is
A) the minimum order quantity
B) safety stock
C) the reorder point
D) none of the above

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Multiple Choice

Q 119Q 119

Which of the following is an inventory system in which the time between orders is constant and the order size varies?
A) continuous inventory system
B) fixed-order quantity system
C) periodic inventory system
D) constant replenishment inventory system

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Multiple Choice

Q 120Q 120

Which of the following statements is incorrect in relation to a periodic inventory system?
A) Smaller safety stock for more critical items is sometimes required for the fixed-interval system.
B) Vendors bundles many small, low-cost items into a single order and delivery to save costs.
C) Items are generally of low value therefore larger safety stocks will not pose a significant cost.
D) If the items are non-critical, even if there is a stock-out, it is not a cause for concern.

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Q 122Q 122

Explain the relationship between ordering costs and carrying costs in the economic order quantity (EOQ) model.

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Q 123Q 123

List and discuss the costs used to determine carrying cost, holding cost and shortage cost.

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Q 124Q 124

Briefly compare and contrast a continuous inventory system to a periodic inventory system listing the advantages and disadvantages of each.

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Q 125Q 125

Explain when it is better to use the continuous inventory system and when it is better to use the periodic inventory system. Discuss how the ABC classification system provides guidance in selecting one versus the other.

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Q 126Q 126

Make a list of the basic steps involved in using the quantity discount model and discuss each.

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Q 127Q 127

Discuss how a fixed-period inventory system differs from a periodic inventory system and provide two examples of where a periodic inventory system is most commonly used.

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