# Chapter 12(final)

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- Chapter 12(final)

**Created:**2012-04-23

**Last Modified:**2012-04-25

comes from its almost fanatical use of economic order quantity and safety stock calculations

and customer service.

issues in inventory management.

quantities used

produce important inventory savings.

item depending upon the item's classification

also reduced.

proportionately.

flows in at a steady rate, resulting in a larger lot size than in an otherwise identical EOQ problem.

ordering costs do not equal annual carrying costs.

determining lot size

demand, the length of lead time, or both.

a. The company was opened by Jeff Bezos in 1995.

b. The company was founded as, and still is, a "virtual retailer" with no inventory.

c. The company is now a world-class leader in warehouse management and automation.

d. The company uses both United Parcel Service and the U.S. Postal Service as shippers.

a. to decouple or separate parts of the production process

b. to decouple the firm from fluctuations in demand and provide a stock of goods that will

provide a selection for customers

c. to take advantage of quantity discounts

d. to hedge against inflation

e. All of the above are functions of inventory

a. to decouple or separate parts of the production process

b. to provide a stock of goods that will provide a selection for customers

c. to take advantage of quantity discounts

d. to minimize holding costs

e. All of the above are functions of inventory.

a. raw material inventory

b. work-in-process inventory

c. maintenance/repair/operating supply inventory

d. safety stock inventory

e. All of these are main types of inventory.

b. In ABC analysis, "A" Items are tightly controlled, have accurate records, and receive regular

review by major decision makers.

c. In ABC analysis, "C" Items have minimal records, periodic review, and simple controls

d. ABC analysis is based on the presumption that all items must be tightly controlled to produce

important cost savings

important cost savings

a. inventory may be categorized by measures other than dollar volume

b. it categorizes on-hand inventory into three groups based on annual dollar volume

c. it is an application of the Pareto principle

d. it states that all items require the same degree of control

a. all items in inventory must be monitored very closely

b. there are usually a few critical items, and many items which are less critical

c. an item is critical if its usage is high

d. more time should be spent on class “C” items because there are more of them

e. an item is critical if its unit price is high

a. item quality

b. unit price

c. the number of units on hand

d. annual demand

e. annual dollar volume

a. is a process by which inventory records are verified once a year

b. provides a measure of inventory accuracy

c. provides a measure of inventory turnover

d. assumes that all inventory records must be verified with the same frequency

e. assumes that the most frequently used items must be counted more frequently

**a.**Service inventory is a fictional concept, because services are intangible.

**b**. Service inventory needs no safety stock, because there's no such thing as a service stockout.

**c**. Effective control of all goods leaving the facility is one applicable technique.

a. timing and cost of orders

b. quantity and cost of orders

c. timing and quantity of orders

d. order quantity and service level

e. ordering cost and carrying cost

a. makes the annual physical inventory more acceptable to management

b. does not require the detailed records necessary when annual physical inventory is used

c. does not require highly trained people

d. allows more rapid identification of errors and consequent remedial action than is possible with

annual physical inventory

annual physical inventory

a. housing costs

b. material handling costs

c. investment costs

d. pilferage, scrap, and obsolescence

e. All of the above are elements of inventory holding cost.

Q = square root of 2DS/H

a. Demand is known, constant, and independent.

b. Lead time is known and constant.

c. Quantity discounts are not possible.

d. Production and use can occur simultaneously.

e. The only variable costs are setup cost and holding (or carrying) cost.

a. to calculate the reorder point, so that replenishments take place at the proper time

b. to minimize the sum of carrying cost and holding cost

c. to maximize the customer service level

d. to minimize the sum of setup cost and holding cost

of the economic order quantity model shown below, the average amount of inventory on hand

a. is smaller the smaller is the holding cost per unit

b. is zero

c. is one-half of the economic order quantity

d. is affected by the amount of product cost

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

e. 600

a. the likelihood of a stockout

b. the number of items ordered

c. total inventory based costs

d. the number of orders placed

e. the safety stock

constant, the EOQ will

a. increase by about 41%

b. increase by 100%

c. increase by 200%

d. increase, but more data is needed to say by how much

e. either increase or decrease

order quantity is approximately

a. 24

b. 100

c. 141

d. 490

e. 600

b. If annual demand were to double, the EOQ would increase.

c. If the carrying cost were to increase, the EOQ would fall.

d. If annual demand were to double, the number of orders per year would increase.

e. All of the above statements are true

**b**. If annual demand were to increase, the EOQ would increase.

**c.**If the ordering cost were to increase, the EOQ would rise.

**d**. If annual demand were to double, the EOQ would also double.

revised EOQ is

a. three times as large

b. one-third as large

c. nine times as large

d. one-ninth as large

e. cannot be determined

a. unchanged

b. increased by less than 50%

c. increased by 50%

d. increased by more than 50%

e. cannot be determined

a. $1.50 b. $2.00 c. $3.00 d. $150.00

per year. The EOQ model is appropriate. The cost-minimizing solution for this product will cost

_____ per year in total annual inventory costs.

a. $400

b. $800

c. $1200

d. zero; this is a class C item

per year. The cost-minimizing solution for this product is to order

a. all 4000 units at one time

b. 200 units per order

c. every 20 days

d. 10 times per year

e. none of the above

a. The reorder point is that quantity that triggers an action to restock an item.

b. There is a reorder point even if lead time and demand during lead time are constant.

c. The reorder point is larger than d x L if safety stock is present.

d. The fixed-period model has no reorder point.

e. All of the above are true

a. what is the lowest amount of inventory necessary to satisfy a certain service level

b. what is the lowest purchasing price

c. whether to use fixed-quantity or fixed-period order policy

d. how many units should be ordered

e. what is the shortest lead time

gearboxes will be ordered." Which of the following statements is true?

**a**. One hundred is the reorder point, and 14 is the order quantity.

**b**. Fourteen is the reorder point, and 100 is the order quantity.

**c.**The number 100 is a function of demand during lead time.

**d**. Fourteen is the safety stock, and 100 is the reorder point.

a. It applies only to items produced in the firm's own production departments.

b. It relaxes the assumption that all the order quantity is received at one time.

c. It relaxes the assumption that the demand rate is constant.

d. It minimizes the total production costs.

e. It minimizes inventory.

b. Because receipt is noninstantaneous, some units are used immediately, not stored in inventory.

c. Average inventory is less than one-half of the production order quantity.

d. All else equal, the smaller the ratio of demand rate to production rate, the larger is the

production order quantity.

production order quantity

demand is 3650 units, setup cost is $50, holding cost is $12 per unit per year, the daily demand rate

is 10 and the daily production rate is 100. The production order quantity for this problem is

approximately

a. 139 b. 174 c. 184 d. 365 e. 548

The production order quantity for this problem is approximately 612 units. The average inventory

for this problem is approximately

a. 61

b. 245

c. 300

d. 306

e. 490

such as PCs and cell phones?

a. housing costs

b. material handling costs

c. labor cost

d. parts cost

e. pilferage, scrap, and obsolescence

a. is always an EOQ quantity

b. minimizes the sum of holding and ordering costs

c. minimizes the unit purchase price

d. may be a quantity below that at which one qualifies for that price

e. minimizes the sum of holding, ordering, and product costs

b. In inventory management, item cost becomes relevant to inventory decisions only when a

quantity discount is available.

c. If carrying costs are expressed as a percentage of value, EOQ is larger at each lower price in

the discount schedule.

d. The larger annual demand, the less attractive a discount schedule will be.

level is 95%, approximately what is the statistical safety stock?

a. 8 units

b. 10 units

c. 16 units

d. 64 units

e. cannot be determined without lead time data

What safety stock (approximately) provides a 95% service level?

a. 41

b. 55

c. 133

d. 140

e. 165

and the order lead time is four days. The service level is 95%. What should the reorder point be?

a. about 18

b. about 24

c. about 32

d. about 38

e. more than 40

a. replace failed units with good ones

b. eliminate the possibility of a stockout

c. eliminate the likelihood of a stockout due to erroneous inventory tally

d. control the likelihood of a stockout due to the variability of demand during lead time

e. protect the firm from a sudden decrease in demand

a. minimizing an expected stockout cost

b. carrying sufficient safety stock so as to eliminate all stockouts

c. meeting 95% of all demands

d. setting the level of safety stock so that a given stockout risk is not exceeded

e. minimizing total costs

a. increasing the EOQ

b. placing an extra order

c. raising the selling price to reduce demand

d. adding safety stock

e. reducing the reorder point

time is constant at 4 days, 90 percent service level will require safety stock of approximately

a. 7 units

b. 10 units

c. 13 units

d. 16 units

e. 26 units

deviation of 3 days, 95 percent service requires a safety stock of approximately

a. 28 units

b. 30 units

c. 49 units

d. 59 units

e. 114 units

units per day with a daily standard deviation of 16, and lead time averages 5 days with a standard

deviation of 1 day. The standard deviation of demand during lead time is approximately

a. 15 units b. 100 units c. 154 units

d. 500 units e. 13,125 units

because

**a**. a stockout can occur during the review period as well as during the lead time

**b**. this model is used for products that have large standard deviations of demand

**c**. this model is used for products that require very high service levels

a. it involves higher ordering costs than the fixed quantity inventory system

b. additional inventory records are required

c. the average inventory level is decreased

d. since there is no count of inventory during the review period, a stockout is possible

e. orders usually are for larger quantities

a. the supplier will be more cooperative

b. there is no physical count of inventory items when an item is withdrawn

c. no inventory records are required

d. orders usually are for smaller order quantities

e. the average inventory level is reduced

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