Ch 13 Final Review

Question 1

A stock or store of goods for future use

Answer 1

Inventory

Question 2

Items that are ready to be sold or used

Answer 2

Independent demand items

Question 3

True or false: A “typical” firm has roughly 30% of its current assets and as much as 90% of its working capital invested in inventory

Answer 3

True

Question 4

What are the two main concerns with inventory management?

Answer 4

1) Customer service

2) Costs of inventory

Question 5

Having the right goods available in the right quantity in the right place at the right time

Answer 5

Customer service

Question 6

What are managements two major concerns regarding inventory?

Answer 6

1) Tracking inventory

2) Decisions on when to order and how much

Question 7

Physical count of items in inventory made at periodic intervals

Answer 7

Periodic system

Question 8

System that keeps track of removals from inventory & receipts into inventory continuously, for each item
- Order is placed when inventory drops to a predetermined level

Answer 8

Perpetual Inventory System

Question 9

Two containers of inventory; reorder when the first is empty

Answer 9

Two-bin system

Question 10

System that electronically records actual sales

Answer 10

Point-of-sale (POS) systems

Question 11

Time interval between ordering and receiving the order

Answer 11

Lead time

Question 12

Amount paid to buy the inventory

Answer 12

Purchase cost

Question 13

Cost to carry an item in inventory for a length of time

Answer 13

Holding (carrying) cost

Question 14

Costs of ordering and receiving inventory

Answer 14

Ordering costs

Question 15

The costs involved in preparing equipment for a job

Answer 15

Setup costs

Question 16

Costs resulting when demand exceeds the supply of inventory

Answer 16

Shortage (stock-out) costs

Question 17

Classifying inventory according to some measure of importance, and allocating control efforts accordingly

Answer 17

ABC approach

Question 18

A physical count of items in inventory

Answer 18

Cycle counting

Question 19

Identify the optimal order quantity by minimizing the sum of annual costs that vary with order size and frequency

Answer 19

Economic order quantity (EOQ)

Question 20

What is the formula for total cost?

Answer 20

= (Q/2)(h) + (D/Q)(s)
Q = Order quantity
H = Holding costs
D = Demand
S = Ordering cost

Question 21

When the quantity on hand of an item drops to this predetermined amount, the item is reordered

Answer 21

Reorder point

Question 22

What is the formula for reorder point (ROP)?

Answer 22

d * LT + safety stock
d = demand rate
LT = lead time

Question 23

The probability that demand will not exceed supply during lead time

Answer 23

Service level

Question 24

What is the formula for service level?

Answer 24

= 100% - Stock out

Question 25

Orders are placed at fixed time intervals

Answer 25

Fixed-order-interval (FOI) model

Question 26

What is the formula for FOI?

Answer 26

= expected demand + safety stock - amount on hand