Chapter 13

Question 1

60. Which of the following is not one of the assumptions of the basic EOQ model?
    a. Annual demand requirements are known and constant.

    b. Lead time does not vary.

    c. Each order is received in a single delivery.
    d. Quantity discounts are available.

    e. All of the above are necessary assumptions.

Answer 1

d. Quantity discounts are available.


Question 2

61. Which of the following interactions with vendors would potentially lead to inventory reductions?
    a. reduce lead times

    b. increase safety stock

    c. less frequent purchases
    d. larger batch quantities
    e. longer order intervals

Answer 2

a. reduce lead times


Question 3

62. A non-linear cost related to order size is the cost of:
    a. interest

    b. insurance

    c. taxes
    d. receiving
    e. space

Answer 3

d. receiving

Question 4

63. In a two-bin inventory system, the amount contained in the second bin is equal to the:
    a. ROP

    b. EOQ

    c. amount in the first bin
    d. optimum stocking level
    e. safety stock

Answer 4

a. ROP


Question 5

64. When carrying costs are stated as a percentage of unit price, the minimum points on the total cost curves:
    a. Line up

    b. Equal zero

    c. Do not line up
    d. Cannot be calculated

    e. Depend on the percentage assigned

Answer 5

c. Do not line up

Question 6

65. Dairy items, fresh fruit and newspapers are items that:
    a. do not require safety stocks

    b. cannot be ordered in large quantities

    c. are subject to deterioration and spoilage
    d. require that prices be lowered every two days
    e. have minimal holding costs

Answer 6

c. are subject to deterioration and spoilage

Question 7

66. Which of the following is least likely to be included in order costs?
    a. processing vendor invoices for payment

    b. moving delivered goods to temporary storage

    c. inspecting incoming goods for quantity
    d. taking an inventory to determine how much is needed
    e. temporary storage of delivered goods

Answer 7

e. temporary storage of delivered goods

Question 8

67. In an A-B-C system, the typical percentage of the number of items in inventory for A items is about:
    a. 10

    b. 30

    c. 50
    d. 70
    e. 90

Answer 8

a. 10


Question 9

68. In the A-B-C classification system, items which account for fifteen percent of the total dollar-volume for a majority of the inventory items would be classified as:

    a. A items

    b. B items
    c. C items

    d. A items plus B items
    e. B items plus C items

Answer 9

c. C items


Question 10

69. In the A-B-C classification system, items which account for sixty percent of the total dollar-volume for few inventory items would be classified as:

    a. A items

    b. B items
    c. C items

    d. A items plus B items
    e. B items plus C items

Answer 10

a. A items


Question 11

70. The purpose of “cycle counting” is to:

    a. count all the items in inventory

    b. count bicycles and motorcycles in inventory

    c. reduce discrepancies between inventory records and actual
    d. reduce theft

    e. count 10% of the items each month

Answer 11

c. reduce discrepancies between inventory records and actual

Question 12

71. The EOQ model is most relevant for which one of the following?
    a. ordering items with dependent demand

    b. determination of safety stock

    c. ordering perishable items
    d. determining fixed interval order quantities
    e. determining fixed order quantities

Answer 12

e. determining fixed order quantities

Question 13

72. Which is not a true assumption in the EOQ model?
    a. Production rate is constant

    b. Lead time doesn’t vary

    c. No more than 3 items are involved
    d. Usage rate is constant
    e. No quantity discounts

Answer 13

c. No more than 3 items are involved

Question 14

73. In a supermarket, a vendor’s restocking the shelves every Monday morning is an example of:
    a. safety stock replenishment

    b. economic order quantities

    c. reorder points
    d. fixed order interval
    e. blanket ordering

Answer 14

d. fixed order interval

Question 15

74. A cycle count program will usually require that ‘A’ items be counted:
    a. daily.

    b. once a week.

    c. monthly.
    d. quarterly.

    e. more frequently than annually.

Answer 15

e. more frequently than annually.

Question 16

75. A risk avoider would want ______ safety stock.
    a. Less

    b. More

    c. The same
    d. Zero
    e. 50%

Answer 16

b. More


Question 17

76. In the basic EOQ model, if annual demand doubles, the effect on the EOQ is:
    a. It doubles.

    b. It is four times its previous amount.

    c. It is half its previous amount.
    d. It is about 70 percent of its previous amount.
    e. It increases by about 40 percent.

Answer 17

e. It increases by about 40 percent.

Question 18

77. In the basic EOQ model, if lead time increases from five to 10 days, the EOQ will:
    a. double

    b. increase, but not double

    c. decrease by a factor of two
    d. remain the same
    e. none of the above

Answer 18

d. remain the same

Question 19

78. In the basic EOQ model, an annual demand of 40 units, an ordering cost of $5, and a holding cost of $1 per unit per year will result in an EOQ of:

    a. 20

    b. square root of 200
    c. 200

    d. 400

    e. none of these

Answer 19

a. 20


Question 20

79. In the basic EOQ model, if D = 60 per month, S = $12, and H = $10 per unit per month, EOQ is:
    a. 10

    b. 12

    c. 24
    d. 72
    e. 144

Answer 20

b. 12


Question 21

80. In the basic EOQ model, if annual demand is 50, carrying cost is $2, and ordering cost is $15, EOQ is approximately:

    a. 11

    b. 20
    c. 24
    d. 28
    e. 375

Answer 21

d. 28

Question 22

81. Which of the following is not true for Economic Production Quantity model?
    a. Usage rate is constant.

    b. Production rate exceeds usage rate.

    c. Run size exceeds maximum inventory.
    d. There are no ordering or setup costs.

    e. Average inventory is one-half maximum inventory.

Answer 22

d. There are no ordering or setup costs.


Question 23

82. Given the same demand, setup/ordering costs, and carrying costs, the EOQ calculated using incremental replenishment will be ____________ if instantaneous replenishment was assumed:

    a. greater than the EOQ

    b. equal to the EOQ
    c. smaller than the EOQ

    d. greater than or equal to the EOQ
    e. smaller than or equal to the EOQ

Answer 23

a. greater than the EOQ


Question 24

83. The introduction of quantity discounts will cause the optimum order quantity to be:
    a. smaller

    b. unchanged

    c. greater
    d. smaller or unchanged
    e. unchanged or greater

Answer 24

e. unchanged or greater

Question 25

84. A fill rate is the percentage of _____ filled by stock on hand.
    a. Shipments

    b. Demand

    c. Inventory
    d. Safety stock
    e. Lead time

Answer 25

b. Demand


Question 26

85. In the quantity discount model, with carrying cost stated as a percentage of unit purchase price, in order for the EOQ of the lowest curve to be optimum, it must:

    a. have the lowest total cost

    b. be in a feasible range
    c. be to the left of the price break quantity for that price
    d. have the largest quantity compared to other EOQ’s
    e. none of the above

Answer 26

b. be in a feasible range

Question 27

86. Which one of the following is not generally a determinant of the reorder point?
    a. rate of demand

    b. length of lead time

    c. lead time variability
    d. stockout risk
    e. purchase cost

Answer 27

e. purchase cost

Question 28

87. If no variations in demand or lead time exist, the ROP will equal:
    a. the EOQ

    b. expected usage during lead time

    c. safety stock
    d. the service level

    e. the EOQ plus safety stock

Answer 28

b. expected usage during lead time


Question 29

88. If average demand for an inventory item is 200 units per day, lead time is three days, and safety stock is 100 units, the reorder point is:

    a. 100 units

    b. 200 units
    c. 300 units
    d. 600 units
    e. 700 units

Answer 29

e. 700 units

Question 30

89. Which one of the following is implied by a “lead time” service level of 95 percent?

    a. Approximately 95 percent of demand during lead time will be satisfied.

    b. Approximately 95 percent of inventory will be used during lead time.

    c. The probability is 95 percent that demand during lead time will exactly equal the amount on hand at the beginning of lead time.
    d. The probability is 95 percent that demand during lead time will not exceed the amount on hand at the beginning of lead time.

    e. none of the above

Answer 30

d. The probability is 95 percent that demand during lead time will not exceed the amount on hand at the beginning of lead time.


Question 31

90. Which one of the following is implied by an “annual” service level of 95 percent?
    a. Approximately 95 percent of demand during lead time will be satisfied.

    b. The probability is 95 percent that demand will exceed supply during lead time.

    c. The probability is 95 percent that demand will equal supply during lead time.
    d. The probability is 95 percent that demand will not exceed supply during lead time.
    e. None of the above.

Answer 31

e. None of the above.

Question 32

91. Daily usage is exactly 60 gallons per day. Lead time is normally distributed with a mean of 10 days and a standard deviation of 2 days. What is the standard deviation of demand during lead time?

    a. 60 x 2

    b. 60 times the square root of 2
    c. 60 times the square root of 10
    d. 60 x 10

    e. none of the above

Answer 32

a. 60 x 2


The standard deviation of demand during lead time is the square root of squared demand times the squared standard deviation of lead time.

Question 33

92. Lead time is exactly 20 days long. Daily demand is normally distributed with a mean of 10 gallons per day and a standard deviation of 2 gallons. What is the standard deviation of demand during lead time?

    a. 20 x 2

    b. 20 x 10
    c. 2 times the square root of 20
    d. 2 times the square root of 10
    e. none of the above

Answer 33

c. 2 times the square root of 20

The standard deviation of demand during lead time equals the daily standard deviation of demand times the square root of the lead time.

Question 34

93. All of the following are possible reasons for using the fixed order interval model except:
    a. Supplier policy encourages use.

    b. Grouping orders can save in shipping costs.

    c. The required safety stock is lower than with an EOQ/ROP model.
    d. It is suited to periodic checks of inventory levels rather than continuous monitoring.
    e. Continuous monitoring is not practical.

Answer 34

c. The required safety stock is lower than with an EOQ/ROP model.

Question 35

94. Which of these products would be most apt to involve the use of a single-period model?
    a. gold coins

    b. hammers

    c. fresh fish
    d. calculators
    e. frozen corn

Answer 35

c. fresh fish

Question 36

95. In a single-period model, if shortage and excess costs are equal, then the optimum service level is:
    a. 0

    b. .33

    c. .50
    d. .67

    e. none of these

Answer 36

c. .50

The ratio of shortage cost to shortage plus excess cost is 0.5.

Question 37

96. In a single-period model, if shortage cost is four times excess cost, then the optimum service level is ___ percent.

    a. 100

    b. 80
    c. 60
    d. 40
    e. 20

Answer 37

b. 80

The ratio of shortage cost to shortage plus excess cost is 0.8.

Question 38

97. In the single-period model, if excess cost is double shortage cost, the approximate stockout risk, assuming an optimum service level, is ___ percent.

    a. 100

    b. 67
    c. 50
    d. 33
    e. 5

Answer 38

b. 67

The ratio of shortage cost to shortage plus excess cost is 0.67.

Question 39

98. If, in a single-period inventory situation, the probabilities of demand being 1, 2, 3, or 4 units are .3, .3, .2, and .2, respectively. If two units are stocked, what is the probability of selling both of them?
    a. .5

    b. .6
    c. .7

    d. .8

    e. none of these

Answer 39

c. .7


Question 40

99. The management of supply chain inventories focuses on:
    a. internal inventories

    b. external inventories

    c. both internal and external inventories
    d. safety stock elimination
    e. optimizing reorder points

Answer 40

c. both internal and external inventories

Question 41

100. An operations strategy for inventory management should work towards:
     a. increasing lot sizes

     b. decreasing lot sizes

     c. increasing safety stocks
     d. decreasing service levels
     e. increasing order quantities

Answer 41

b. decreasing lot sizes


Question 42

101. Cycle stock inventory is intended to deal with ________.
     a. excess costs

     b. shortage costs

     c. stockouts
     d. expected demand
     e. quantity discounts

Answer 42

d. expected demand

Question 43

102. An operations strategy which recognizes high carrying costs and reduces ordering costs will result in:
     a. unchanged order quantities

     b. slightly decreased order quantities

     c. greatly decreased order quantities
     d. slightly increased order quantities
     e. greatly increased order quantities

Answer 43

c. greatly decreased order quantities

Question 44

103. The need for safety stocks can be reduced by an operations strategy which:
     a. increases lead time

     b. increases lead time variability

     c. increases lot sizes
     d. decreases ordering costs

     e. decreases lead time variability

Answer 44

e. decreases lead time variability

Question 45

104. If average demand for an item is 20 units per day, safety stock is 50 units, and lead time is four days, the ROP will be:

     a. 20

     b. 50
     c. 70
     d. 80
     e. 130

Answer 45

e. 130

Multiply the demand rate by the lead time and add the safety stock.

Question 46

105. With an A-B-C system, an item that had a high demand but a low annual dollar volume would probably be classified as:

     a. A

     b. B
     c. C

     d. none of these

Answer 46

c. C


Question 47

106. The fixed order interval model would be most likely to be used for this situation:
     a. A company has switched from mass production to lean production.

     b. Production is done in batches.

     c. Spare parts are ordered when a new machine is purchased.
     d. Grouping orders can save shipping costs.
     e. none of these

Answer 47

d. Grouping orders can save shipping costs.

Question 48

107. Which item would be least likely to be ordered under a fixed order interval system?
     a. textbooks at a college bookstore

     b. auto parts at an assembly plant

     c. cards at a gift shop
     d. canned peas at a supermarket
     e. none of these

Answer 48

b. auto parts at an assembly plant


Question 49

108. Which one of these would not be a factor in determining the reorder point?
     a. the EOQ

     b. the lead time

     c. the variability of demand
     d. the demand or usage rate
     e. all are factors

Answer 49

a. the EOQ