Question 1

A computerized inventory system checks inventory levels at the end of the week and produces suggested orders for the coming week.What kind of system is this?

Accepted Answer

Periodic systems have set review and order intervals.

Question 2

Which of the following is NOT an assumption of the basic EOQ model?

Accepted Answer

The basic EOQ model does not account for quantity discounts, so this is not an assumption of the model. The other assumptions include constant and known annual demand, constant and known lead-time, and no stockouts allowed.

Question 3

Capacity,as opposed to inventory:

Accepted Answer

Capacity refers to the resources that provide the potential to produce items. Inventory, on the other hand, is a stock of raw materials, work in process, or finished goods used to facilitate production or satisfy customer demands. Option A refers to the depletion rate of inventory, while option B refers to adjustments made to inventory levels based on anticipated changes in demand or supply.

Question 4

A particular brand of soap has a lead time of three weeks to reorder,a weekly standard deviation of ten units and a weekly average usage of 30 units.The reorder point for this soap,assuming a 95% service level (z = 1.645),is:

Accepted Answer

The formula to calculate reorder point is:

Reorder Point = (Lead Time Demand) + Z-score x √(Lead Time) x Standard Deviation

Where:
Lead Time Demand = Average Usage during lead time
Z-score = 1.645 (for 95% service level)
Lead Time = 3 weeks
Standard Deviation = 10 units

Substituting the given values in the formula:

Reorder Point = (30 units/week x 3 weeks) + 1.645 x √(3 weeks) x 10 units/week
Reorder Point = 90 units + 16.45 units
Reorder Point = 106.45 units

Therefore, the correct choice is D.

Question 5

A paint supplier that places orders for different colors of paint for delivery at the same time should use a:

Accepted Answer

A P system, or periodic review system, is suitable for placing orders for multiple items at the same time, as it reviews inventory levels at regular intervals and places orders accordingly.

Question 6

Which of the following statements is NOT true about managing inventory in supply chains?

Accepted Answer

In a supply chain, multiple firms are typically involved in the manufacturing and distribution process, each controlling their own inventories. No single firm typically controls all of the inventories required for a product.

Question 7

Transportation cost is an example of:

Accepted Answer

Transportation cost is considered part of the ordering cost as it is incurred when placing and receiving orders.

Question 8

Which cost defines the cost of capital?

Accepted Answer

The cost of capital refers to the opportunity cost of investing in inventory, or the return that could have been earned on alternative investments of similar risk. Items cost, storage cost, and deterioration cost are not relevant to the cost of capital.

Question 9

Which of the following is NOT a purpose of inventory?

Accepted Answer

Inventory is not maintained to decrease obsolescence, but rather to minimize stockouts and ensure that demand can be met consistently. However, obsolescence can be a consequence of excess inventory.

Question 10

ABC analysis requires that inventory be classified according to:

Accepted Answer

ABC analysis is a technique to classify inventory based on their annual dollar usage or value. It helps in identifying the inventory items that contribute the most to the overall inventory cost and prioritizing them for better management. Therefore, option B is the correct choice. The other options, namely alphabetical order by item name, activity-based costs, and due date, are not relevant to ABC analysis.

Question 11

The carrying cost for inventory consists of which cost components?

Accepted Answer

The carrying cost for inventory consists of obsolescence cost, storage cost, and capital cost. Handling cost and stockout cost are not typically included in carrying cost. Ordering cost may be a separate cost component but is not included in the carrying cost.

Question 12

In a Q system,average inventory:

Accepted Answer

In a Q system, inventory is replenished continuously, leading to lower average inventory levels compared to a periodic review system (P system), where inventory is reviewed and replenished at fixed intervals.

Question 13

Of the cost elements making up total inventory cost,which is the most difficult to estimate?

Accepted Answer

Stockout costs are the most difficult to estimate as they are dependent on various unpredictable factors such as demand variability, lead time variability, and supply chain disruptions.

Question 14

The total cost per year for question 9,assuming no stockouts,is approximately equal to:

Accepted Answer

The total cost per year can be calculated as:
Total cost = Annual ordering cost + Annual carrying cost
Annual ordering cost = (Number of orders per year) x (Cost per order) = (100/25) x $10 = $40
Annual carrying cost = (Average inventory level) x (Cost per unit per year) = (50/2) x $2 = $50
Total cost = $40 + $50 = $90
Total cost per year for 3 years = 3 x $90 = $270
Adding the initial inventory cost of $17.72, the total cost is approximately $547.72. Therefore, the best choice is C.

Question 15

Which cost is NOT part of inventory ordering costs?

Accepted Answer

Obsolescence costs are associated with an inventory item becoming out-of-date, expired, or otherwise unusable. These costs are not related to the ordering process and are not included in inventory ordering costs.

Question 16

In the basic EOQ model,if annual demand and carrying costs double,the EOQ:

Accepted Answer

In the EOQ formula, EOQ = sqrt((2DS)/H), if both demand (D) and carrying cost (H) double, the EOQ remains the same because the increase in D is offset by the increase in H.

Question 17

Unlike a requirements philosophy of inventory management,a replenishment philosophy:

Accepted Answer

The answer of Unlike a requirements philosophy of inventory management,a...

Question 18

Which of the following statements is true about a Q system?

Accepted Answer

The Q system, also known as the continuous review system, is characterized by a constant order quantity (Q) and a reorder point (R). These two parameters determine when and how much to order, making statement B correct.

Question 19

Given that unit cost = $25,annual carrying charge = 10%,annual demand = 4000 units and ordering cost = $15 per order,the EOQ is:

Accepted Answer

EOQ formula: √[(2 x D x S) / H]
Where, 
D = annual demand = 4000 units
S = ordering cost = $15
H = annual carrying charge = 10% of unit cost = 0.1 x 25 = $2.5

Plug in the values in the formula:
√[(2 x 4000 x 15) / 2.5] = 219.108

Therefore, the EOQ is 219 units.

The best choice is to order 219 units at a time because it minimizes the total inventory cost by balancing the ordering and carrying costs.

Question 20

Independent demand inventory consists of:

Accepted Answer

Independent demand inventory refers to items or products that are demanded by external customers and are not used in the production of another item. Examples include finished goods held by retailers or wholesalers, items sold in stores, and products ordered by customers online. The demand for these items is influenced by market conditions outside the firm, such as consumer preferences, price changes, and competition.

Quiz 15: Independent Demand Inventory