taylor mgmt-science10 tif 16
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Inventory ManagementTRANSCRIPT
Introduction to Management Science, 10e (Taylor)
Introduction to Management Science, 10e (Taylor)
Chapter 16 Inventory Management
1) Independent demand items are used internally to produce a final product.
Answer: FALSE
Diff: 2Page Ref: 744
Main Heading: Elements of Inventory Management
Key words: dependent demand items
2) Dependent demand items are final products demanded by an external customer.
Answer: FALSE
Diff: 2Page Ref: 744
Main Heading: Elements of Inventory Management
Key words: independent demand items
3) Inventory costs include carrying, ordering, and shortage costs.
Answer: TRUE
Diff: 1Page Ref: 744
Main Heading: Elements of Inventory Management
Key words: inventory costs
4) The purpose of inventory management is to determine how much and when to order.
Answer: TRUE
Diff: 1Page Ref: 746
Main Heading: Elements of Inventory Management
Key words: inventory management
5) In a continuous inventory system, a constant amount is ordered when inventory declines to a predetermined level.
Answer: TRUE
Diff: 2Page Ref: 746
Main Heading: Inventory Control Systems
Key words: inventory control systems, continuous inventory system
6) In a periodic inventory system, a constant amount is ordered when inventory declines to a predetermined level.
Answer: FALSE
Diff: 2Page Ref: 747
Main Heading: Inventory Control Systems
Key words: continuous inventory system
7) The EOQ is the optimal order quantity that will minimize total carrying costs.
Answer: FALSE
Diff: 2Page Ref: 748
Main Heading: The Basic EOQ Model
Key words: economic order quantity models, EOQ models
8) Assumptions of the basic EOQ model include constant demand, no shortages, constant lead time, and gradual usage.
Answer: FALSE
Diff: 2Page Ref: 748
Main Heading: The Basic EOQ Model
Key words: economic order quantity models, EOQ models
9) The non-instantaneous receipt model applies only to manufacturing.
Answer: FALSE
Diff: 3Page Ref: 754
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ model with non-instantaneous receipt
10) The EOQ model with shortages does not allow backorders.
Answer: FALSE
Diff: 3Page Ref: 756
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages
11) The basic EOQ model plays no role in determining order sizes in the presence of quantity discounts.
Answer: FALSE
Diff: 2Page Ref: 761
Main Heading: Quantity Discounts
Key words: EOQ model quantity discounts
12) Quantity discounts are always evaluated with carrying cost as a percentage of price.
Answer: FALSE
Diff: 2Page Ref: 762
Main Heading: Quantity Discounts
Key words: EOQ model quantity discounts
13) The service level is the probability that the inventory available during lead time will meet demand.
Answer: TRUE
Diff: 2Page Ref: 768
Main Heading: Determining Safety Stocks Using Service Levels
Key words: service level, safety stocks
14) If service level is 50%, then safety stock is equal to 50% of lead time demand.
Answer: FALSE
Diff: 2Page Ref: 768
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels
15) The reorder point is the date when a new order should be placed.
Answer: FALSE
Diff: 1Page Ref: 766
Main Heading: Reorder Point and Safety Stock
Key words: reorder point
16) If lead time and demand are constant, safety stock is equal to demand multiplied by lead time.
Answer: FALSE
Diff: 1Page Ref: 768
Main Heading: Reorder Point and Safety Stock
Key words: safety stock
17) Periodic inventory systems normally require smaller safety stock than a continuous inventory system.
Answer: FALSE
Diff: 2Page Ref: 772
Main Heading: Economic Order Quantity Models
Key words: periodic inventory system
18) Techniques for inventory analysis are widely used to analyze other types of problems.
Answer: FALSE
Diff: 2Page Ref: 773
Main Heading: Economic Order Quantity Models
Key words: inventory system
19) Carrying costs include storage cost, interest and depreciation.
Answer: TRUE
Diff: 2Page Ref: 744
Main Heading: Economic Order Quantity Models
Key words: inventory costs
20) Ordering costs include transportation, shipping and inspection.
Answer: TRUE
Diff: 2Page Ref: 746
Main Heading: Economic Order Quantity Models
Key words: inventory costs
21) Shortage costs include loss of customer goodwill.
Answer: TRUE
Diff: 2Page Ref: 746
Main Heading: Economic Order Quantity Models
Key words: inventory costs
22) If a business frequently runs out of inventory their service levels are negative.
Answer: FALSE
Diff: 2Page Ref: 768
Main Heading: Economic Order Quantity Models
Key words: service level
23) __________ demand items are generally final products demanded by customers.
Answer: independent
Diff: 2Page Ref: 744
Main Heading: Economic Order Quantity Models
Key words: independent demand items
24) The purpose of inventory management is to determine __________ and __________ to order.
Answer: how much/when
Diff: 2Page Ref: 746
Main Heading: Economic Order Quantity Models
Key words: inventory management
25) __________ demand items are used internally to produce a final product.
Answer: dependent
Diff: 2Page Ref: 744
Main Heading: Economic Order Quantity Models
Key words: independent demand items
26) Inventory __________ costs include storage cost and the cost of capital.
Answer: carrying
Diff: 2Page Ref: 744
Main Heading: Economic Order Quantity Models
Key words: carrying cost
27) Inventory __________ costs include transportation and inspection.
Answer: ordering
Diff: 2Page Ref: 745
Main Heading: Economic Order Quantity Models
Key words: ordering costs
28) A __________ occurs when customer demand cannot be met because of insufficient inventory.
Answer: shortage or stock out
Diff: 2Page Ref: 756
Main Heading: Economic Order Quantity Models
Key words: shortage or stock out costs
29) In a __________ inventory system, a constant amount is ordered when inventory declines to a predetermined level.
Answer: continuous
Diff: 2Page Ref: 746
Main Heading: Economic Order Quantity Models
Key words: continuous inventory system
30) In a __________ inventory system an order is placed for a variable amount after a fixed passage of time
Answer: periodic
Diff: 2Page Ref: 747
Main Heading: Economic Order Quantity Models
Key words: periodic inventory system
31) __________ is the optimal order quantity that will minimize the total inventory costs.
Answer: EOQ or economic order quantity
Diff: 1Page Ref: 748
Main Heading: Economic Order Quantity Models
Key words: economic order quantity, EOQ
32) A __________ occurs when an item is out of stock and is sold to the customer when a shipment arrives.
Answer: backorder
Diff: 2Page Ref: 757
Main Heading: Economic Order Quantity Models
Key words: economic order quantity model, EOQ model assumptions
33) Costs involved in a typical inventory model include __________ and __________.
Answer: carrying costs and ordering costs
Diff: 1Page Ref: 746
Main Heading: Economic Order Quantity Models
Key words: EOQ model, average inventory
34) In the basic EOQ model, as the size of the order increases, the annual __________ cost decreases.
Answer: ordering
Diff: 2Page Ref: 748
Main Heading: Economic Order Quantity Models
Key words: economic order quantity model inventory costs, ordering costs
35) In the basic EOQ model, as the size of the order increases, the annual __________ cost increases.
Answer: carrying
Diff: 2Page Ref: 748
Main Heading: Economic Order Quantity Models
Key words: economic order quantity model, inventory costs, carrying costs
36) In the quantity discounts model, the __________ must be included in the total cost calculation. This variable is not included in the basic EOQ model.
Answer: purchase price
Diff: 2Page Ref: 762
Main Heading: Economic Order Quantity Models
Key words: economic order quantity model inventory costs, carrying costs
37) If all the variables are held constant, the total inventory cost in a non-instantaneous receipts model is __________ than the total cost in the basic EOQ model.
Answer: larger or higher
Diff: 3Page Ref: 754
Main Heading: Economic Order Quantity Models
Key words: production lot size model, non-instantaneous receipts model
38) The __________ determines when an order should be placed for a continuous review inventory system.
Answer: reorder point
Diff: 1Page Ref: 767
Main Heading: Economic Order Quantity Models
Key words: reorder point
39) __________ is inventory that is used to help protect against stockouts.
Answer: Safety Stock
Diff: 1Page Ref: 767
Main Heading: Economic Order Quantity Models
Key words: safety stock
40) __________ is the probability that the inventory available during the lead time will meet demand.
Answer: Service level
Diff: 2Page Ref: 768
Main Heading: Economic Order Quantity Models
Key words: service level
41) If lead time and demand are constant then __________ is zero.
Answer: safety stock
Diff: 2Page Ref: 768
Main Heading: Economic Order Quantity Models
Key words: safety stock
42) For the __________ inventory system, Q, the quantity ordered, can vary.
Answer: periodic
Diff: 2Page Ref: 747
Main Heading: Economic Order Quantity Models
Key words: periodic inventory system
43) The EOQ model is __________ , or resistant to errors in the cost estimates and demand.
Answer: robust
Diff: 2Page Ref: 753
Main Heading: Economic Order Quantity Models
Key words: economic order quantity, EOQ
44) __________ costs and _________ costs react inversely to each other in response to an increase in order size.
Answer: Carrying and ordering
Diff: 2Page Ref: 748
Main Heading: Economic Order Quantity Models
Key words: inventory costs
45) The basic EOQ model assumes that __________ is known with certainty and is relatively constant over time.
Answer: demand
Diff: 2Page Ref: 748
Main Heading: Economic Order Quantity Models
Key words: EOQ model, econ order quantity models, assumption of EOQ models
46) In the basic EOQ model, if D=80 per month, Co=$13, and Cc=$11 per unit per month, what is the EOQ?
Answer: 13.75
Diff: 1Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
47) In the basic EOQ model, if D=40 per month, Co=$9, and Cc=$8 per unit per month, what is the EOQ?
Answer: 9.49
Diff: 1Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
48) In the basic EOQ model, if D=100 per month, Co=$20, and Cc=$15 per unit per month, what is the EOQ?
Answer: 16.33
Diff: 1Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
49) In the basic EOQ model, if annual demand is 50 units, carrying cost is $2 per unit per year, and ordering cost is $15, what is the EOQ?
Answer: 27.39
Diff: 2Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
A company produces item Y, and uses the basic EOQ model for managing its inventory. Lead time to obtain item Y is two weeks. Demand is normally distributed with a mean of 400 units per week and a standard deviation of 40 units per week. The desired service level is 98.5%. The ordering cost is $20, and carrying cost is 20% of the items cost, which is $10.
50) Determine the order quantity for product Y. (Assume 52 weeks of operation per year.)
Answer: 456.07
Diff: 2Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: economic order quantity model, EOQ model
51) Determine the annual setup cost and the annual carrying cost for product Y. (Assume 52 weeks of operation per year.)
Answer: 456.07
Diff: 2Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: the annual setup cost, economic order quantity models
52) Determine the total annual inventory cost for product Y. Include the item cost in your calculations. (Assume 52 weeks of operation per year.)
Answer: 104,912
Diff: 2Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: the annual setup cost, economic order quantity models
53) Determine the reorder point for product Y.
Answer: 522.76
Diff: 2Page Ref: 768
Main Heading: Reorder Point
Key words: economic order quantity models, reorder point
The injection molding department of Alver Inc. uses an average of 40 pounds of a special powder per day. The plant operates 250 days per year. The daily usage of the powder is normally distributed with a standard deviation of 5 pounds per day. The lead time to obtain the powder from a supplier is 9 days. The annual holding cost is $2. per unit and the cost of ordering the powder is $50.
54) How many units should Alver Inc. order in order to minimize annual ordering and carrying cost?
Answer: 707.11
Diff: 2Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: economic order quantity model
55) How many orders will be placed each year?
Answer: 14.14 orders
Diff: 2Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: economic order quantity model, number of orders
56) Determine the reorder point for a service level of 97%.
Answer: 388.2 units
Diff: 2Page Ref: 768
Main Heading: Reorder Point
Key words: reorder point, service level
The daily sales of a peanut butter at Power's Grocery are normally distributed, with a mean of 12 jars and a standard deviation of 4. The manager checks the inventories on shelves and places an order every three days. Delivery lead time is two days.
57) How much safety stock of peanut butter should they have for a 99% service level?
Answer: Z = 2.33, r = 3, and L = 2
SS = 2.33 (4)(5)1/2 = 20.8 or 21 jars
Diff: 2Page Ref: 772
Main Heading: Inventory Control Systems
Key words: payoff table
58) If there are 4 jars on the shelf when an order is placed, how much should the store order?
Answer: Base stock level =(tb + L) + safety stock = 12(5) + 21 = 60 + 21 = 81.
Order quantity = 81 - 4 = 77 boxes.
Diff: 2Page Ref: 772
Main Heading: Inventory Control Systems
Key words: payoff table
59) The daily demand for a product is normally distributed with a mean of 80 and a standard deviation of 8. Constant lead time is 4 days. The cost of placing an order is $20. The item costs $8 and the carrying rate per year is 10% of the item cost. Determine the economic order quantity.
Answer: 1209
Diff: 2Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: economic order quantity model
60) In a non-instantaneous receipt model, daily demand is 55 units and daily production is 120 units, Co=$70 and Cc=$4 per unit/year. The production facility operates 300 days per year. What is the maximum inventory level?
Answer: 411.63 units
Diff: 1Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ model with non-instantaneous receipt
61) In a non-instantaneous receipt model, daily demand is 55 units and daily production is 120 units, Co=$70 and Cc=$4 per unit/year. The production facility operates 300 days per year. What is the optimal order quantity?
Answer: 759.93
Diff: 1Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: non-instantaneous receipt model, economic production model
62) A product has an annual demand of 3600 units. Unit cost for this product is $3. Set up cost is $20 and the inventory carrying rate as a percent of the unit cost is 25%. The product is produced in-house where the daily production rate is 50 units. Assume 360 working days per year and determine the economic production quantity.
Answer: 490 units
Diff: 2Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: econ order/prod quantity, non-instantaneous receipts model
63) A product has an annual demand of 3600 units. Unit cost for this product is $3. Set up cost is $20 and the inventory carrying rate as a percent of the unit cost is 25%. The product is produced in-house where the daily production rate is 50 units. Assume 360 working days per year and determine the annual ordering cost and carrying cost.
Answer: $147 and $147 for a total of $294.
Diff: 2Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: econ order/prod quant, non-instant receipt mod, an order/carry cost
64) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and CS =$25, what is the total annual shortage cost?
Answer: 296.51
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the total annual shortage cost
65) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and CS =$25, what is the optimal order quantity?
Answer: Qopt = 495.74 units
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the optimal order quantity
66) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and CS =$25, what is the annual ordering cost?
Answer: 1355.55
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: the annual ordering cost, EOQ model with shortages
67) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and CS =$25, what is the optimal stock out level?
Answer: Sopt = 108.44 units
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: optimal stock out level, EOQ model with shortages
68) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and CS =$25, what is the annual carrying cost?
Answer: 1059.03
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: the annual carrying cost, EOQ model with shortages
69) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and CS =$25, what is the total minimum annual inventory cost?
Answer: TCmin = 2711.09
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: total minimum annual inventory cost, EOQ model with shortages
A company distributes repair parts for high end appliances. The annual demand is 81,000 and the company operates 300 days per year. The annual carrying cost is 20% of the item cost, which is $500. The ordering cost is estimated at $60 and the shortage cost is $150.
70) Determine the optimal order quantity.
Answer: 402.5
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages
71) Determine the optimal shortage level.
Answer: 161
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the optimal shortage level
72) How many order per year will they place?
Answer: 201
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the annual carrying cost
73) What is the maximum inventory level?
Answer: 242
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the annual setup cost
74) Determine the annual shortage cost.
Answer: $4,830
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the annual shortage cost
75) If the daily demand is 30 and the lead time in days is 3, what is the reorder point?
Answer: 90
Diff: 1Page Ref: 767
Main Heading: Reorder Point
Key words: reorder point
76) If the daily demand is 67 and the lead time in days is 2, what is the reorder point?
Answer: 134
Diff: 1Page Ref: 767
Main Heading: Reorder Point
Key words: reorder point
77) If the daily demand is 25 and the lead time in days is 4, what is the reorder point?
Answer: 100
Diff: 1Page Ref: 767
Main Heading: Reorder Point
Key words: reorder point
78) Sonny Lawler's law office uses EOQ models to manage their office supplies. They've been ordering ink refills for their printers in quantities of 60 units. The firm estimates carrying cost at 40% of the $10 unit cost and that annual demand is about 240 units per year. The assumptions of the basic EOQ model are thought to apply. For what value of ordering cost would its action be optimal?
Answer: $30
Diff: 2Page Ref: 752
Main Heading: Economic Order Quantity Models
Key words: economic order quantity model
79) Dana Swor's Dream Store sells weight loss products. Her best-selling item, an energy booster and fat burning pill, has an annual demand of 400 units. Ordering cost is $40 and carrying cost is $5 per unit year. How many units should she order to minimize total inventory costs?
Answer: 80
Diff: 2Page Ref: 752
Main Heading: Reorder Point
Key words: EOQ model
80) Annual demand for a paperback dictionary at the bookstore is 1200 units. Ordering costs are 350, carrying costs are $6 per unit per year, and the lead time is 9 days. The bookstore is open for 300 days of the year. What is the reorder point ?
Answer: 36
Diff: 2Page Ref: 772
Main Heading: Economic Order Quantity Models
Key words: reorder point
81) If average demand for an inventory item is 200 units per day, lead time is 3 days, and safety stock is 100 units, what is the reorder point?
Answer: 700
Diff: 1Page Ref: 772
Main Heading: Reorder Point
Key words: safety stock, reorder point
82) If average demand for an inventory item is 180 units per day, lead time is 5 days, and safety stock is 90 units, what is the reorder point?
Answer: 990
Diff: 1Page Ref: 772
Main Heading: Reorder Point
Key words: reorder point
83) Annual demand for notecards at Suzie's Stationery shop is 10,000 units. Deliveries take about 5 working days and Suzie operates 300 days per year. Calculate the reorder point for the notecards that she stocks.
Answer: 167 notecards = 33.33 X 5
Diff: 1Page Ref: 772
Main Heading: Reorder Point
Key words: reorder point
A bakery uses an average of 60 ounces of organic orange juice daily. Demand is normally distributed with a standard deviation of 15 ounces. The bakery places orders every seven days. The lead time for delivery of the juice is three days.
84) Compute the safety stock required to achieve a 98% service level
Answer: 97 ounces
Diff: 1Page Ref: 772
Main Heading: Inventory Control Systems
Key words: periodic inventory system
85) If the bakery has 190 ounces at the time an order is placed, how much should be ordered?
Answer: 697 - 190 = 507 ounces
Diff: 1Page Ref: 772
Main Heading: Inventory Control Systems
Key words: periodic inventory system
86) The daily demand for a product is normally distributed with a mean of 80 and a standard deviation of 8. Constant lead time is 4 days. The cost of placing an order is $20. The item costs $8 and the carrying rate per year is 10% of the item cost. Determine the reorder point to satisfy 90% of the orders.
Answer: 340.48
Diff: 2Page Ref: 768
Main Heading: Reorder Point
Key words: economic order quantity, reorder point
87) A bakery's use of corn syrup is normally distributed with a mean of 50 gallons per day and a standard deviation of 5 gallons per day. Lead time for delivery of the syrup is normal with a mean of 4 days and a standard deviation of 2 days. The manager wants a service level of 99 percent. Calculate the reorder point.
Answer: 434 gallons
Diff: 3Page Ref: 768
Main Heading: Reorder Point
Key words: reorder point, variable demand, variable lead time
88) A bakery's use of corn syrup is normally distributed with a mean of 50 gallons per day and a standard deviation of 5 gallons per day. Lead time for delivery of the syrup is normal with a mean of 4 days and a standard deviation of 2 days. The manager reorders when his inventory drops to 300 gallons. What cycle service level is implied by this policy?
Answer: z = .995, so service level = 84%
Diff: 3Page Ref: 768
Main Heading: Reorder Point
Key words: reorder point, variable demand/lead time, service level
89) A manager has just received a revised price schedule from a vendor. What order quantity should the manager use in order to minimize total costs? Annual Demand is 120 units, ordering cost is $10, and annual carrying cost is $1 per unit.
QuantityUnit Price
1-59$15
60-99$14
100 or more$13
Answer: Optimal Q = 49. TC(49) = $1849; TC(60)=$1730; TC (100) = $1622, so order 100.
Diff: 3Page Ref: 762-763
Main Heading: Quantity Discounts
Key words: quantity discounts, constant carrying cost per unit
90) An office manager uses 400 boxes of file folders per year. The price is $8.50 per box for an order size of 199 boxes or less, $8.00 per box for orders of 200 to 799 boxes, and $7.50 per box for an order of 800 or more boxes. Carrying cost is 20 percent of the price of the product and ordering costs are $80. What order quantity minimizes total annual cost?
Answer: Optimal Q = 194. TC (194) = $3730; TC (200) = $3520; TC (800) = $3640, so order 200.
Diff: 3Page Ref: 763-764
Main Heading: Quantity Discounts
Key words: quantity discounts, carrying cost as percent of price
91) __________ demand items are used internally to produce a final product.
A) Independent
B) Dependent
C) Assumed
D) Internal
E) Integrated
Answer: B
Diff: 2Page Ref: 744
Main Heading: Elements of Inventory Management
Key words: inventory management
92) __________ demand items are final products demanded by an external customer.
A) Assumed
B) Dependent
C) Independent
D) External
E) Integrated
Answer: C
Diff: 2Page Ref: 744
Main Heading: Elements of Inventory Management
Key words: independent demand
93) Inventory costs include
A) carrying
B) ordering
C) shortage costs
D) all of the above
Answer: D
Diff: 2Page Ref: 744
Main Heading: Elements of Inventory Management
Key words: inventory costs
94) The purpose of inventory management is to determine
A) timing and cost of orders
B) quantity and cost of orders
C) timing and quantity of orders
D) ordering and carrying costs
Answer: C
Diff: 2Page Ref: 746
Main Heading: Elements of Inventory Management
Key words: inventory management
95) A keyboard costs $1,000, and the annual holding cost is 25%. Annual demand is 10,000 units, and the order cost is $150 per order. What is the approximate economic order quantity?
A) 16
B) 70
C) 110
D) 183
Answer: C
Diff: 3Page Ref: 752
Main Heading: Economic Order Quantity Models
Key words: economic order quantity, EOQ
96) In a(n) __________ inventory system a constant amount is ordered when inventory declines to a predetermined level.
A) optimal
B) economic
C) periodic
D) continuous
Answer: D
Diff: 2Page Ref: 746
Main Heading: Inventory Control Systems
Key words: continuous inventory system
97) In a(n) __________ inventory system, an order is placed for a variable amount after a fixed passage of time.
A) periodic
B) continuous
C) optimal
D) economic
Answer: A
Diff: 2Page Ref: 747
Main Heading: Inventory Control Systems
Key words: periodic inventory system
98) EOQ is a(n) __________ inventory system.
A) periodic
B) continuous
C) optimal
D) economic
Answer: B
Diff: 3Page Ref: 746
Main Heading: Economic Order Quantity Models
Key words: economic order quantity models, EOQ models
99) EOQ is the optimal order quantity that will __________ total inventory costs.
A) maximize
B) minimize
C) steady
D) maintain
E) improve
Answer: B
Diff: 2Page Ref: 748
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
100) Assumptions of the EOQ model include
A) constant demand and no shortages
B) constant lead time
C) instantaneous order receipt
D) all of the above
Answer: D
Diff: 2Page Ref: 748
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
101) In the basic EOQ model, if lead time increases from 5 to 10 days , the EOQ will
A) double
B) increase, but not by double the amount
C) remain the same
D) decrease
Answer: C
Diff: 2Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, econ order quantity models, assumption of EOQ models
102) The economic production quantity is 500 units (units are delivered to the user department as they come off the production line). If the firm decides to buy this item from an outside supplier rather than producing it, the economic purchase quantity would probably be (assume that inventory costs of production and purchasing an item are the same):
A) less than 500 units
B) more than 500 units
C) 500 units
D) the direction of change in quantity cannot be determined without additional information
Answer: B
Diff: 3Page Ref: 755
Main Heading: The Basic EOQ Model
Key words: economic production quantity model, non-instant receipts model
103) If order quantity is increased, annual holding cost __________, annual order cost __________, and change in annual total cost __________.
A) decreases, increases, is positive
B) decreases, increases, can not be determined
C) decreases, decreases, can not be determined
D) increases, decreases, is negative
E) increases, decreases, can not be determined
Answer: E
Diff: 3Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: economic order quantity model
104) The EOQ minimizes total __________ cost.
A) inventory
B) purchase
C) ordering
D) marketing
E) carrying
Answer: C
Diff: 3Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models, inventory costs
105) In an EOQ model, as the carrying cost increases, the order quantity :
A) increases.
B) decreases.
C) remains the same
D) cannot be determined
Answer: B
Diff: 2Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
106) In the basic EOQ model, if D=60 per month, S=$12, and H=$10 per unit per month, what is the EOQ?
A) 11
B) 12
C) 13
D) 14
Answer: B
Diff: 1Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
107) In the basic EOQ model, if annual demand is 50, carrying cost is $2 per unity per year, and ordering cost is $15, what is the EOQ?
A) 27.39
B) 26.39
C) 25.39
D) 24.39
E) 22.39
Answer: A
Diff: 1Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
108) The daily sales of a peanut butter at Power's Grocery are normally distributed, with a mean of 12 jars and a standard deviation of 4. The manager checks the inventories on shelves and places an order every three days. Delivery lead time is two days and they carry 21 jars for safety stock. If there are 4 jars on the shelf when an order is placed, how much should the store order?
A) 77
B) 81
C) 32
D) 36
E) cannot be determined from the information provided
Answer: A
Diff: 1Page Ref: 772
Main Heading: Inventory Control Systems
Key words: periodic review
109) In a non instantaneous receipt model, daily demand is 55 units and daily production is 120 units, Co=$70 and Cc=$4 per unit per year. What is the maximum inventory level? (Assume that the facility is open 365 days per year)
A) 616.9
B) 618.4
C) 620.3
D) 622.9
E) 625.5
Answer: A
Diff: 2Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: non-instantaneous receipt model
110) A firm is presently purchasing an itme for inventory using the basic EOQ model. They plan on making the product themselves and will be using the EOQ model based on non-instantaneous receipt of inventory. If everything else stays the same, what changes should the firm expect?
A) EOQ decreases
B) Total relevant inventory (annual setup and annual carrying) cost increase
C) Average inventory level decreases
D) Reorder point increases
E) Safety stock increases
Answer: C
Diff: 3Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: non-instantaneous receipt model, economic production model
111) When using the EOQ Formula with non-instantaneous production, as the demand rate (D) increases more than the rate of production, the EOQ:
A) increases
B) decreases
C) remains the same
D) cannot be determined
Answer: A
Diff: 3Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: non-instantaneous receipt model, economic production model
112) The diagram above represents which type of inventory model?
A) Economic Order Quantity (EOQ)
B) EOQ with Noninstantaneous Receipt
C) Economic Production Quantity
D) Fixed Period Model
E) none of the above
Answer: B
Diff: 1Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ with noninstantaneous receipt
113) The slope of the line labeled "B" in the diagram above is:
A) Order rate
B) Rate of inventory demand
C) Production rate
D) Shipping rate
E) Production rate minus rate of inventory demand
Answer: E
Diff: 2Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ with noninstantaneous receipt
114) The slope of the line labeled "A" in the diagram below is:
A) Order rate
B) Rate of inventory demand
C) Production rate
D) Shipping rate
E) Production rate minus rate of inventory demand
Answer: C
Diff: 3Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ with noninstantaneous receipt
115) The slope of the line labeled "C" in the diagram below is:
A) Order rate
B) Rate of inventory demand
C) Production rate
D) Shipping rate
E) Production rate minus rate of inventory demand
Answer: B
Diff: 2Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ with noninstantaneous receipt
116) The interval labeled "E" in the diagram below is:
A) Production cycle
B) Production run length
C) Shipping lead time
D) Inventory fill rate
Answer: A
Diff: 3Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ with noninstantaneous receipt
117) The interval labeled "D" in the diagram below is:
A) Production cycle
B) Production run length
C) Shipping lead time
D) Inventory fill rate
Answer: B
Diff: 1Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ with noninstantaneous receipt
118) A product has demand during lead time of 100 units, with a standard deviation of 25 units. What safety stock (approximately) provides a 95% service level?
A) 41
B) 55
C) 95
D) 140
Answer: A
Diff: 3Page Ref: 768
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages
119) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and Cs =$25, what is the total annual shortage cost?
A) 294.72
B) 296.51
C) 298.53
D) 299.17
E) 285.91
Answer: B
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages
120) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and Cs =$25, what is the order quantity?
A) 394.72
B) 285.91
C) 495.74
D) 296.51
E) 456.34
Answer: C
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages
121) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and Cs =$25, what is the optimal stock out level?
A) 96.44
B) 102.36
C) 108.44
D) 114.64
E) 121.43
Answer: C
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the optimal stock out level
122) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and Cs =$25, what is the annual carrying cost?
A) 2711.09
B) 1059.03
C) 1355.55
D) 296.51
E) 495.74
Answer: B
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the annual carrying cost
123) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and Cs =$25, what is the annual ordering cost?
A) 2711.09
B) 1059.03
C) 1355.55
D) 296.51
E) 495.74
Answer: C
Diff: 2Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the annual ordering cost
The manager of the Quick Stop Corner Convenience Store (which is open 360 days per year) sells four cases of Stein soda each day (1,440 cases per year). Order costs are $8.00 per order. The lead time for an order is three days. Annual holding costs are equal to $57.60 per case.
124) If the manager orders 16 cases each time she placed an order, what is the average inventory level?
A) 4 cases
B) 8 cases
C) 12 cases
D) 20 cases
E) 16 cases
Answer: B
Diff: 2Page Ref: 752
Main Heading: Economic Order Quantity Models
Key words: economic order quantity, EOQ
125) If the manager orders 16 cases each time she placed an order, how many orders would she place in a year?
A) 10
B) 22.5
C) 50
D) 72
E) 90
Answer: E
Diff: 2Page Ref: 752
Main Heading: Economic Order Quantity Models
Key words: economic order quantity, EOQ
126) What is the optimal order quantity for Stein soda?
A) 4 cases
B) 8 cases
C) 12 cases
D) 20 cases
E) 16 cases
Answer: D
Diff: 2Page Ref: 752
Main Heading: Economic Order Quantity Models
Key words: economic order quantity, EOQ
127) What is the reorder point for Stein soda?
A) 4 cases
B) 8 cases
C) 12 cases
D) 20 cases
E) 16 cases
Answer: C
Diff: 2Page Ref: 767
Main Heading: Economic Order Quantity Models
Key words: reorder point
128) If the daily demand is 50 and the lead time in days is 4, what is the reorder point?
A) 200
B) 220
C) 240
D) 260
E) 300
Answer: A
Diff: 1Page Ref: 767
Main Heading: Reorder Point
Key words: reorder point
129) If the daily demand is 40 and the level time in days is 4, what is the reorder point?
A) 120
B) 140
C) 160
D) 180
E) 200
Answer: C
Diff: 1Page Ref: 767
Main Heading: Reorder Point
Key words: reorder point
130) If the daily demand is 10 and the level time in days is 8, what is the reorder point?
A) 50
B) 60
C) 70
D) 80
E) 90
Answer: D
Diff: 1Page Ref: 767
Main Heading: Reorder Point
Key words: reorder point
131) If average demand for an inventory item is 200 units per day, lead time is 3 days, and safety stock is 100 units, what is the reorder point?
A) 300
B) 500
C) 600
D) 700
E) 800
Answer: D
Diff: 2Page Ref: 767
Main Heading: Reorder Point
Key words: reorder point
132) Ruby owns a small caf and uses a linen supplier for her tablecloths. Whenever she needs more tablecloths, she calls the supplier. She uses an average of 12 tablecloths a day with a standard deviation of 3 tablecloths. Lead time is a constant 2 days. If Ruby is willing to accept a 5% stockout risk, what is the reorder point, rounded to the nearest tablecloth? Assume demand is normally distributed.
A) 28
B) 31
C) 34
D) 42
E) none of the above
Answer: B
Diff: 2Page Ref: 768
Main Heading: Reorder Point
Key words: reorder point
133) The service level is the probability that
A) the inventory will meet demand
B) the inventory available during lead time will meet demand
C) the inventory available during lead time will not meet demand
D) the inventory will not meet demand
Answer: B
Diff: 2Page Ref: 768
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels
134) What service level results in zero safety stock in reorder point calculations?
A) 0%
B) 33%
C) 50%
D) 100%
E) 80%
Answer: C
Diff: 2Page Ref: 768
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels
135) The __________ is the probability that the inventory available during lead time will meet demand.
A) service level
B) inventory level
C) review period
D) reorder point
E) maximum inventory level
Answer: A
Diff: 2Page Ref: 768
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels
136) If annual demand equals 1000 units, the number of working days per year is 250, Co=$300 per order and Cc=$3 per unit, how many days are between orders in the basic EOQ model?
A) 105
B) 110
C) 112
D) 115
E) 120
Answer: C
Diff: 2Page Ref: 752
Main Heading: Determining Safety Stocks Using Service Levels
Key words: EOQ model, economic order quantity models
137) Annual demand for a paperback dictionary at a bookstore is 1200 units. The order cost is $350 and the carrying cost is $6 per unit per year. The number of working days per year is 365. What is the reorder point? Assume that the basic EOQ model is applicable.
A) 29.2
B) 29.4
C) 29.6
D) 29.8
E) 30.1
Answer: C
Diff: 3Page Ref: 767
Main Heading: Determining Safety Stocks Using Service Levels
Key words: reorder point
138) As service level increases, expected number of stock outs __________ and safety stock __________.
A) increase, increases
B) decrease, decreases
C) decrease, increases
D) increase, decreases
Answer: C
Diff: 2Page Ref: 768
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels
139) Adding 1.5 standard deviations of safety stock to the average demand during lead time will result in a service level of approximately:
A) 50%
B) 68.4%
C) 84.1%
D) 93.3%
E) 97.7%
Answer: D
Diff: 2Page Ref: 768
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels
140) A periodic inventory system
A) uses fixed order sizes at variable time intervals
B) normally requires a larger safety stock
C) cannot be used if demand is variable
D) is used to periodically manage inventory
Answer: B
Diff: 2Page Ref: 772
Main Heading: Order Quantity for a Periodic Inventory System
Key words: periodic inventory system, fixed time period inventory system
141) Demand for a product is constant but lead time is variable. The demand during the lead time is normally distributed with a mean of 40 and a standard deviation of 4. They computed a reorder point of 45 units Approximately what service level is being used?
A) 85%
B) 90%
C) 95%
D) 98%
E) none of the above
Answer: B
Diff: 2Page Ref: 767
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels
142) The economic order quantity is especially sensitive to which of the following?
A) ordering cost
B) carrying cost
C) annual demand
D) lead time
E) none of the above
Answer: E
Diff: 2Page Ref: 753
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels
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