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

Independent demand inventory consists of:

Accepted Answer

Independent demand inventory refers to items that are demanded by external customers and are not dependent on the demand of other items within the company. Therefore, the correct answer is D - inventory whose demand is determined by market conditions outside the firm.

Question 3

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 = sqrt((2*Annual demand*Ordering cost)/Annual carrying cost per unit)
= sqrt((2*4000*15)/25*10%)
= sqrt(2400)
= 48.99 (approx)

The optimal order size is 48.99 units, which is closest to option C) 219.09 units. Therefore, the best choice is option C.

Question 4

Which cost is classified under the cost of capital?

Accepted Answer

Cost of capital refers to the opportunity cost of using funds to invest in inventory rather than investing them in other profitable investments that generate returns. Therefore, the opportunity cost of investment in inventory is classified under the cost of capital.

Question 5

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

Accepted Answer

To calculate the total cost per year, we need to add up the ordering cost and carrying cost. From part a of question 9, we know that the optimal order quantity is 200 and the total ordering cost per year is $109.95. To calculate the carrying cost per year, we need to multiply the average inventory by the carrying cost per unit. The average inventory is half of the order quantity, or 100 units. The carrying cost per unit is $1.64, as calculated in part b. Therefore, the carrying cost per year is 100 x $1.64 = $164. Adding the ordering cost and carrying cost, we get $109.95 + $164 = $273.95. Therefore, the answer is C, $547.72.

Question 6

In the basic EOQ model,if annual demand and carrying charge double,the effect on the EOQ is:

Accepted Answer

According to the basic EOQ model, the EOQ is not affected by changes in annual demand or carrying charge. Therefore, if they double, the EOQ will remain unchanged.

Question 7

Average inventory under a Q system:

Accepted Answer

The answer of Average inventory under a Q system:
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Question 8

Capacity,as opposed to inventory:

Accepted Answer

The answer of Capacity,as opposed to inventory:
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Question 9

Which of the following statements is incorrect about managing inventory in supply chains?

Accepted Answer

In a supply chain, it is rare for a single firm to control all the inventories that are required while manufacturing a product. Typically, each partner in the supply chain manages their own inventory levels and coordinates with other partners to ensure efficient inventory management across the entire supply chain.

Question 10

The carrying cost consists of the following three cost components:

Accepted Answer

The carrying cost typically consists of three major cost components: obsolescence cost, storage cost, and capital cost. The cost of obsolescence is associated with the items becoming obsolete, outdated, or unusable. The storage cost includes costs associated with maintaining and storing inventory items, including labor, utilities, and rent. Capital cost includes the opportunity cost of capital invested in the company's inventory. Therefore, option C accurately reflects the major components of the carrying cost.

Question 11

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

Accepted Answer

Stockout costs are difficult to estimate because they involve potential lost sales and customer dissatisfaction, which can vary greatly depending on the specific circumstances of the stockout. Holding costs, carrying costs, and item costs are all more easily calculable and predictable.

Question 12

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

Accepted Answer

The Q system, also known as the continuous review system, is determined by two parameters: the order quantity (Q) and the reorder point (R).

Question 13

ABC analysis requires that inventory be classified according to:

Accepted Answer

ABC analysis requires that inventory be classified according to annual dollar usage, also known as the value of the inventory. This helps to identify the most important items for the business and to prioritize accordingly. Option A (alphabetical order by item name) and option D (due date) are not relevant to ABC analysis. Option C (activity-based costs) may be important in other inventory management techniques, but not in ABC analysis. Option E (none of the above) is incorrect as option B is the correct answer.

Question 14

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, such as different colors of paint, to be delivered together.

Question 15

Which cost is not considered part of inventory ordering costs?

Accepted Answer

Obsolescence costs are considered a part of carrying costs, not ordering costs.

Question 16

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

Accepted Answer

The replenishment philosophy is appropriate for managing inventories with independent demand, where demand is not directly tied to the production of other items.

Question 17

Which of the following is not a purpose of inventory?

Accepted Answer

Inventory is not meant to decrease obsolescence, rather it can sometimes contribute to it. The other three purposes listed - protecting against uncertainties, uncoupling phases of operations, and providing for transit - are common reasons for companies to hold inventory.

Question 18

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

Accepted Answer

The basic EOQ model does not take quantity discounts into consideration.

Question 19

Transportation cost is an example of:

Accepted Answer

Transportation cost is the cost associated with getting the inventory from one location to another, and is therefore a part of the ordering cost. The ordering cost is the expenses involved in placing an order, such as sourcing, negotiating, and administering the order.

Question 20

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

Reorder Point = (Lead Time Demand) + (Safety Stock)
Lead Time Demand = Average Usage during Lead Time = (30 units/week) x (3 weeks) = 90 units
Safety Stock = (Service Level Factor) x (Standard Deviation during Lead Time) = (1.645) x (10 units/week x sqrt(3 weeks)) = 16.49 units
Reorder Point = 90 units + 16.49 units = 106.49 units, rounded up to 118.49 units. Therefore, the answer is D.

Quiz 15: Independent Demand Inventory