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- Chapter 12(final)

Meagan O.

According to the global company profile, Amazon.com's advantage in inventory management

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

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

false

A major challenge in inventory management is to maintain a balance between inventory investment

and customer service.

and customer service.

true

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Which item to order and with which supplier the order should be placed are the two fundamental

issues in inventory management.

issues in inventory management.

false

One function of inventory is to take advantage of quantity discounts.

true

Work-in-process inventory is devoted to maintenance, repair, and operations.

false

ABC analysis classifies inventoried items into three groups, usually based on annual units or

quantities used

quantities used

false

In ABC analysis, "A" Items are the most tightly controlled

true

ABC analysis is based on the presumption that carefully controlling all items is necessary to

produce important inventory savings.

produce important inventory savings.

false

Cycle counting is an inventory control technique exclusively used for cyclical items

false

One advantage of cycle counting is that it maintains accurate inventory records.

true

In cycle counting, the frequency of item counting and stock verification usually varies from item to

item depending upon the item's classification

item depending upon the item's classification

true

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Retail inventory that is unaccounted for between receipt and time of sale is known as shrinkage.

true

The demand for automobiles would be considered an independent demand.

true

Insurance and taxes on inventory are part of the costs known as setup or ordering costs.

false

If setup costs are reduced by substantial reductions in setup time, the production order quantity is

also reduced.

also reduced.

true

The EOQ model is best suited for items whose demand is dependent on other products

false

In the simple EOQ model, if annual demand were to increase, the EOQ would increase

proportionately.

proportionately.

false

At the economic order quantity, holding costs are equal to purchasing costs.

false

In the simple EOQ model, if the carrying cost were to double, the EOQ would also double

false

In the production order quantity (POQ) model, inventory does not arrive in a single moment but

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

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

true

The reorder point is the inventory level at which action is taken to replenish the stocked item.

true

The reorder point is the inventory level at which action is taken to replenish the stocked item.

true

In the quantity discount model, it is possible to have a cost-minimizing solution where annual

ordering costs do not equal annual carrying costs.

ordering costs do not equal annual carrying costs.

true

In the quantity discount model, the cost of acquiring goods (product cost) is not a factor in

determining lot size

determining lot size

false

Service level is the complement of the probability of a stockout

true

Units of safety stock are additions to the reorder point that allow for variability in the rate of

demand, the length of lead time, or both.

demand, the length of lead time, or both.

true

Safety stock in inventory systems depends only on the average demand during the lead time.

false

The fixed-period inventory model can have a stockout during the review period as well as during the reorder period, which is why fixed-period models require more safety stock than fixed-quantity models.

true

Which of the following statements regarding Amazon.com is false?

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. 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.

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

Which of the following is a function of inventory?

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 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

all of the above

Which of the following would not generally be a motive for a firm to hold inventories?

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. 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.

to minimize holding costs

Which of the following is not one of the four main types 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.

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.

safety stock inventtory

Which of the following statements about ABC analysis is false?

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

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

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

important cost savings

important cost savings

All of the following statements about ABC analysis are true except

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. 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

it states that all items require the same degree of control

ABC analysis is based upon the principle that

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. 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

there are usually a few critical items and many items which are less crucial

ABC analysis divides on-hand inventory into three classes, generally based upon

a. item quality

b. unit price

c. the number of units on hand

d. annual demand

e. annual dollar volume

a. item quality

b. unit price

c. the number of units on hand

d. annual demand

e. annual dollar volume

annual dollar volume

Cycle counting

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. 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

provides a measure of inventory accuracy

Which of the following statements regarding control of service inventories is true?

**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.

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

The two most basic inventory questions answered by the typical inventory model are

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. 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

timing and quantity of orders

Among the advantages of cycle counting is that it

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

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

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

annual physical inventory

annual physical inventory

Which of the following are elements of inventory holding costs?

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.

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.

all of the aboce

Which of the following is not an assumption of the economic order quantity model shown below?

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.

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.

Production and use can occur simultaneously.

The primary purpose of the basic economic order quantity model shown below is Q = 2DS/H

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

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

to minimize the sum of setup cost and holding cost

If the actual order quantity is the economic order quantity in a problem that meets the assumptions

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

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

is one-half of the economic order quantity

A certain type of computer 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

e. 600

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

110

Most inventory models attempt to minimize

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

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

total inventory based costs

In the basic EOQ model, if the cost of placing an order doubles, and all other values remain

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

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

increase by about 41%

In the basic EOQ model, if D=6000 per year, S=$100, H=$5 per unit per month, the economic

order quantity is approximately

a. 24

b. 100

c. 141

d. 490

e. 600

order quantity is approximately

a. 24

b. 100

c. 141

d. 490

e. 600

141

Which of the following statements about the basic EOQ model is true?

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 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

all of the above

Which of the following statements about the basic EOQ model is false?

**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.

If annual demand were to double, the EOQ would also double

A product whose EOQ is 40 experiences a decrease in ordering cost from $90 per order to $10. The

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

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

one-third as large

A product whose EOQ is 400 experiences a 50% increase in demand. The new EOQ is

a. unchanged

b. increased by less than 50%

c. increased by 50%

d. increased by more than 50%

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

increased by less than 50%

For an item, the cost-minimizing order quantity obtained with the EOQ model was 200 units and the total annual inventory (carrying/setup) cost was $600. The inventory carrying cost per unit per year for this item is

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

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

150.00

A product has demand of 4000 units per year. Ordering cost is $20 and holding cost is $4 per unit

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 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

zero, this is a class c item

A product has demand of 4000 units per year. Ordering cost is $20 and holding cost is $4 per unit

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

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

200 units per order

Which of the following statements regarding the reorder point is true?

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. 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

all of the above

The EOQ model with quantity discounts attempts to determine

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

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

how many units should be ordered

An inventory decision rule states "when the inventory level goes down to 14 gearboxes, 100

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.

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

Fourteen is the reorder point, and 100 is the order quantity

Which of the following statements regarding the production order quantity model is true?

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.

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.

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

Which of these statements about the production order quantity model is false?

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.

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.

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

production order quantity

production order quantity

The assumptions of the production order quantity model are met in a situation where annual

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

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

184

A production order quantity problem has daily demand rate = 10 and daily production rate = 50.

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

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

245

Which category of inventory holding costs is much higher than average for rapid-change industries

such as PCs and cell phones?

a. housing costs

b. material handling costs

c. labor cost

d. parts cost

e. pilferage, scrap, and obsolescence

such as PCs and cell phones?

a. housing costs

b. material handling costs

c. labor cost

d. parts cost

e. pilferage, scrap, and obsolescence

pilerage, scrap, and obsolesence

When quantity discounts are allowed, the cost-minimizing order quantity

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

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

minimizes the sum of holding, ordering, and product costs

Which of the following statements about quantity discounts is false?

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.

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.

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

If the standard deviation of demand is six per week, demand is 50 per week, and the desired service

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

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

cannot be determined

A specific 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. 133

d. 140

e. 165

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

a. 41

b. 55

c. 133

d. 140

e. 165

41

Demand for dishwasher water pumps is 8 per day. The standard deviation of demand is 3 per day,

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

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

more than 40

The purpose of safety stock is to

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. 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

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

The proper quantity of safety stock is typically determined by

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. 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

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

If demand is not uniform and constant, then stockout risks can be controlled by

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

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

adding safety stock

If daily demand is normally distributed with a mean of 15 and standard deviation of 5, and lead

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

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

13 units

If daily demand is constant at 10 units per day, and lead time averages 12 days with a standard

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

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

49 units

In a safety stock problem where both demand and lead time are variable, demand averages 150

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

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

154 units

The fixed-period inventory model requires more safety stock than the fixed-quantity models

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

because

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

A disadvantage of the fixed-period inventory system is that

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. 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

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

An advantage of the fixed-period inventory system is that

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

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

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

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