Q&A Hero

Q: One of the basic purposes of inventory analysis in manufacturing and stockkeeping services is to determine how large the orders to vendors should be.

Q: One of the basic purposes of inventory analysis in manufacturing and stockkeeping services is to determine the Level of quality to specify.

Q: One of the basic purposes of inventory analysis in manufacturing and stockkeeping services is to specify when items should be ordered.

Q: An inventory system is a set of policies and controls that monitors Levels of inventory and determines what Levels should be maintained, when stock should be replenished and how large orders should be.

Q: Inventory is defined as the stock of any item or resource used in an organization.

Q: What are some of the possible benefits of decreasing inventory order cycle time?

Q: What is "inventory accuracy", why is it important and how does inaccuracy occur?

Q: Explain the difference between inventory control for finished goods in manufacturing and in services?

Q: Distinguish between dependent and independent demand. How are these demands treated differently?

Q: What is the name of a physical inventory-taking technique that focuses only on certain items and counts more often than once or twice a year?

Q: In making any decision that affects the size of inventory, what are the four categories of cost that must be considered?

Q: What are the five purposes of inventory?

Q: If it takes a supplier 10 days to deliver an order once it has been placed and the standard deviation of daily demand is 14, what is the standard deviation of usage during lead time?

Q: Using the fixed-order quantity model, what is the total ordering cost of inventory given an annual demand of 36,000 units, a cost per order of $40 and a holding cost per unit per year of $45?

Q: Using the fixed-time period inventory model and given an average daily demand of 300 units, 4 days between inventory reviews, 5 days for lead time, 1,200 units of inventory on hand, a "z" of 1.96 and a standard deviation of demand over the review and lead time of 12 units, what quantity should be ordered?

Q: If annual demand is 8,000 units, the ordering cost is $20 per order and the holding cost is $12.50 per unit per year, what is the optimal order quantity using the fixed-order quantity inventory model?

Q: Assuming no safety stock, what is the re-order point (R) given an average daily demand of 100 units and a lead time of 5 days?

Q: What is the term for there being no relationship between demands for various items?

Q: In a department store's inventory management system a stockkeeping unit (SKU) can be used to do which of the following? A. To identify each item B. To discover quality issues before an item is sold C. To identify who purchased exactly which unit D. To track shoplifters E. To keep clerks active even when there are few customers in the store

Q: Computer inventory systems are often programmed to produce a cycle count notice in which following case? A. When the record shows a near maximum balance on hand B. When the record shows positive balance but a backorder was written C. When quality problems have been discovered with the item D. When the item has become obsolete E. When the item has been misplaced in the stockroom

Q: Which of the following values for "z" should we use in as safety stock calculation if we want a Service Probability of 98%? A. 1.64 B. 1.96 C. 2.05 D. 2.30 E. None of the above

Q: Using the ABC classification system for inventory, which of the following is a true statement? A. The "C" items are of moderate dollar value per unit B. You should allocate about 15 % of the dollar volume to "B" items C. The "A" items are of low dollar value per unit D. The "A" items are of high dollar value per unit E. Inexpensive and low usage items are classified as "C" no matter how critical

Q: Which of the following are the recommended percentage groupings of the ABC classifications of the dollar volume of products? A. A items get 15%, B items get 35% and C items get 50% B. A items get 15%, B items get 45% and C items get 40% C. A items get 25%, B items get 35% and C items get 40% D. A items get 25%, B items get 15% and C items get 60% E. A items get 20%, B items get 30% and C items get 50%

Q: The Pareto principle is best applied to which of the following inventory systems? A. EOQ B. Fixed-time period C. ABC classification D. Fixed-order quantity E. Optional replenishment system

Q: Which of the following inventory systems forces a review of the inventory Level at a fixed frequency (such as weekly) and orders replacement supply if the Level has dropped below some amount? A. ABC analysis B. Optional replenishment system C. Fixed-order quantity D. Two-bin system E. Fixed time period

Q: If a vendor has correctly used marginal analysis to select their stock Levels for the day (as in the newsperson problem) and the profit resulting from the last unit being sold (MP) is $120 and the loss resulting from that unit if it is not sold (ML) is $360, which of the following is the probability of the last unit being sold? A. Greater than 0.10 B. Greater than 0.15 C. Greater than 0.25 D. Greater than 0.45 E. None of the above

Q: If a vendor has correctly used marginal analysis to select their stock Levels for the day (as in the newsperson problem) and the profit resulting from the last unit being sold (MP) is $0.90 and the loss resulting from that unit if it is not sold (ML) is $0.50, which of the following is the probability of the last unit being sold? A. Greater than 0.357 B. Greater than 0.400 C. Greater than 0.556 D. Greater than 0.678 E. None of the above

Q: Assume that annual demand for a part is 40,000 units, the ordering cost is $5 per order and the annual holding cost of carrying inventory in stock is 10% of the cost of the unit. A quantity discount will reduce the unit price from $5.00 for an order placed between 0 to 2,499 units to $4.95 for an order of the size of 2,500 units or more. Using a price-break inventory model, which of the following is the optimal order quantity? A. 894 units B. 899 units C. 2,499 units D. 2,500 units E. 2,709.4 units

Q: Assume that annual demand for a part is 15,000 units, the ordering cost is $20 per order and the annual holding cost of carrying inventory in stock is 50% of the cost of the unit. A quantity discount will reduce the unit price from $5.00 for an order placed between 0 to 1,499 units to $4.95 for an order of the size of 1,500 units or more. Using a price-break inventory model, which of the following is the optimal order quantity? A. 357 units B. 490 units C. 1,500 units D. 1,992 units E. None of the above

Q: You would like to use the fixed-time period inventory model to compute the desired order quantity for a company. You know that vendor lead time is 10 days and the number of days between reviews is 15. Which of the following is the standard deviation of demand over the review and lead time period if the standard deviation of daily demand is 10? A. 25 B. 40 C. 50 D. 73 E. 100

Q: You would like to use the fixed-time period inventory model to compute the desired order quantity for a company. You know that vendor lead time is 5 days and the number of days between reviews is 7. Which of the following is the standard deviation of demand over the review and lead time if the standard deviation of daily demand is 8? A. About 27.7 B. About 32.8 C. About 35.8 D. About 39.9 E. About 45.0

Q: Using the fixed-time period inventory model and given an average daily demand of 15 units, 3 days between inventory reviews, 1 day for lead time, 30 units of inventory on hand, a service probability of 98 percent and a standard deviation of daily demand is 3 units, which of the following is the order quantity? A. About 30.4 B. About 42.3 C. About 53.7 D. About 56.8 E. About 59.8

Q: Using the fixed-time period inventory model and given an average daily demand of 75 units, 10 days between inventory reviews, 2 days for lead time, 50 units of inventory on hand, a service probability of 95 percent and a standard deviation of demand over the review and lead time of 8 units, which of the following is the order quantity? A. 863 B. 948 C. 1,044 D. 1,178 E. 4,510

Q: Using the fixed-time period inventory model and given an average daily demand of 200 units, 4 days between inventory reviews, 5 days for lead time, 120 units of inventory on hand, a "z" of 1.96 and a standard deviation of demand over the review and lead time of 3 units, which of the following is the order quantity? A. About 1,086 B. About 1,686 C. About 1,806 D. About 2,206 E. About 2,686

Q: Which of the following is not necessary to compute the order quantity using the fixed-time period model with safety stock? A. Forecast average daily demand B. Safety stock C. Inventory currently on hand D. Ordering cost E. Lead time in days

Q: A company wants to determine its reorder point (R). Demand is variable and they want to build a safety stock into R. The company wants to have a service probability coverage of 95 percent. If average daily demand is 8, lead time is 3 days and the standard deviation of usage during lead time is 2, which of the following is the desired value of R? A. About 17.9 B. About 19.7 C. About 24.0 D. About 27.3 E. About 31.2

Q: A company wants to determine its reorder point (R). Demand is variable and they want to build a safety stock into R. If the average daily demand is 12, the lead time is 5 days, the desired "z" value is 1.96 and the standard deviation of usage during lead time is 3, which of the following is the desired value of R? A. About 6 B. About 16 C. About 61 D. About 66 E. About 79

Q: If it takes a supplier two days to deliver an order once it has been placed and the daily demand for three days has been 120, 124 and 125, which of the following is the standard deviation of usage during lead time? A. About 2.16 B. About 3.05 C. About 4.66 D. About 5.34 E. About 9.30

Q: If it takes a supplier 25 days to deliver an order once it has been placed and the standard deviation of daily demand is 20, which of the following is the standard deviation of usage during lead time? A. 50 B. 100 C. 400 D. 1,000 E. 1,600

Q: If it takes a supplier four days to deliver an order once it has been placed and the standard deviation of daily demand is 10, which of the following is the standard deviation of usage during lead time? A. 10 B. 20 C. 40 D. 100 E. 400

Q: In order to determine the standard deviation of usage during lead time in the reorder point formula for a fixed-order quantity inventory model which of the following must be computed first? A. Standard deviation of daily demand B. Number of standard deviations for a specific service probability C. Stockout cost D. Economic order quantity E. Safety stock Level

Q: To take into consideration demand uncertainty in reorder point (R) calculations, what do we add to the product of the average daily demand and lead time in days when calculating the value of R? A. The product of average daily demand times a standard deviation of lead time B. A "z" value times the lead time in days C. The standard deviation of vendor lead time times the standard deviation of demand D. The product of lead time in days times the standard deviation of lead time E. The product of the standard deviation of demand variability and a "z" score relating to a specific service probability

Q: Using the probability approach to determine an inventory safety stock and wanting to be 95 percent sure of covering inventory demand, which of the following is the number of standard deviations necessary to have the 95 percent service probability assured? A. 1.28 B. 1.64 C. 1.96 D. 2.00 E. 2.18

Q: A company has recorded the last six days of daily demand on a single product they sell. Those values are 37, 115, 93, 112, 73 and 110. The time from when an order is placed to when it arrives at the company from its vendor is 3 days. Assuming the basic fixed-order quantity inventory model fits this situation and no safety stock is needed, which of the following is the reorder point (R)? A. 540 B. 270 C. 115 D. 90 E. 60

Q: A company has recorded the last five days of daily demand on their only product. Those values are 120, 125, 124, 128 and 133. The time from when an order is placed to when it arrives at the company from its vendor is 5 days. Assuming the basic fixed-order quantity inventory model fits this situation and no safety stock is needed, which of the following is the reorder point (R)? A. 120 B. 126 C. 630 D. 950 E. 1,200

Q: A company is planning for its financing needs and uses the basic fixed-order quantity inventory model. Which of the following is the total cost (TC) of the inventory given an annual demand of 10,000, setup cost of $32, a holding cost per unit per year of $4, an EOQ of 400 units and a cost per unit of inventory of $150? A. $1,501,800 B. $1,498,200 C. $500,687 D. $499,313 E. None of the above F. Scrambling; Locked

Q: Using the fixed-order quantity model, which of the following is the total ordering cost of inventory given an annual demand of 36,000 units, a cost per order of $80 and a holding cost per unit per year of $4? A. $849 B. $1,200 C. $1,889 D. $2,267 E. $2,400

Q: If annual demand is 35,000 units, the ordering cost is $50 per order and the holding cost is $0.65 per unit per year, which of the following is the optimal order quantity using the fixed-order quantity model? A. 5,060 B. 2,320 C. 2,133 D. 2,004 E. 1,866

Q: If annual demand is 50,000 units, the ordering cost is $25 per order and the holding cost is $5 per unit per year, which of the following is the optimal order quantity using the fixed-order quantity model? A. 909 B. 707 C. 634 D. 500 E. 141

Q: If annual demand is 12,000 units, the ordering cost is $6 per order and the holding cost is $2.50 per unit per year, which of the following is the optimal order quantity using the fixed-order quantity model? A. 576 B. 240 C. 120.4 D. 60.56 E. 56.03

Q: Assuming no safety stock, what is the re-order point (R) given an average daily demand of 78 units and a lead time of 3 days? A. 421 B. 234 C. 78 D. 26 E. 312

Q: Assuming no safety stock, what is the re-order point (R) given an average daily demand of 50 units, a lead time of 10 days and 625 units on hand? A. 550 B. 500 C. 715 D. 450 E. 475

Q: Which of the following is the set of all cost components that make up the fixed-order quantity total cost (TC) function? A. Annual purchasing cost, annual ordering cost, fixed cost B. Annual holding cost, annual ordering cost, unit cost C. Annual holding cost, annual ordering cost, annual purchasing cost D. Annual lead time cost, annual holding cost, annual purchasing cost E. Annual unit cost, annual set up cost, annual purchasing cost

Q: Which of the following is the symbol for the cost of placing an order in the fixed-order quantity inventory model? A. C B. TC C. H D. Q E. S

Q: Which of the following is not an assumption of the basic fixed-order quantity inventory model? A. Ordering or setup costs are constant B. Inventory holding cost is based on average inventory C. Diminishing returns to scale of holding inventory D. Lead time is constant E. Demand for the product is uniform throughout the period

Q: Which of the following is an assumption of the basic fixed-order quantity inventory model? A. Lead times are averaged B. Ordering costs are variable C. Price per unit of product is constant D. Back orders are allowed E. Stock-out costs are high

Q: Which of the following is a perpetual system for inventory management? A. Fixed-time period B. Fixed-order quantity C. P model D. First-in-first-out E. The wheel of inventory

Q: Which of the following are fixed-time period inventory models? A. Periodic system model B. The two bin system C. Q model D. EOQ Formula E. Just-in-time model

Q: Which of the following are fixed-order quantity inventory models? A. Economic order quantity model B. The ABC model C. Periodic replenishment model D. Cycle counting model E. P model

Q: In making any decision that affects inventory size, which of the following costs do not need to be considered? A. Holding costs B. Setup costs C. Ordering costs D. Fixed costs E. Shortage costs

Q: Which of the following is usually included as an inventory holding cost? A. Breakage B. Order placing C. Typing up an order D. Quantity discounts E. Annualized cost of materials

Q: Which of the following is not included as an inventory holding cost? A. Annualized cost of materials B. Handling C. Insurance D. Pilferage E. Storage facilities

Q: When material is ordered from a vendor, which of the following is not a reason for delays in the order arriving on time? A. Normal variation in shipping time B. A shortage of material at the vendor's plant causing backlogs C. An unexpected strike at the vendor's plant D. A lost order E. Redundant ordering systems

Q: When developing inventory cost models, which of the following are not included as costs to place an order? A. Phone calls B. Taxes C. Clerical D. Calculating quantity to order E. Postage

Q: Which of the following is not a reason to carry inventory? A. To provide a safeguard for variation in raw material delivery time B. To take advantage of economic purchase-order size C. To maintain independence of operations D. To meet variation in product demand E. To keep the stock out of the hands of competitors

Q: Firms keep supplies of inventory for which of the following reasons? A. To maintain dependence of operations B. To provide a feeling of security for the workforce C. To meet variation in product demand D. To hedge against wage increases E. To protect against supplier design changes

Q: Which of the following is one of the categories of manufacturing inventory? A. Economic Order Inventory B. Work-in-process C. Quality units D. JIT Inventory E. Re-order point

Q: Which of the following is not one of the categories of manufacturing inventory? A. Raw materials B. Finished products C. Component parts D. Just-in-time E. Supplies

Q: The "sawtooth effect", named after turn-around artist Al "chainsaw" Dunlap is the severe reduction of inventory and service Levels that occurs when a firm has gone through a hostile takeover.

Q: Cycle counting is a physical inventory-taking technique in which inventory is counted on a frequent basis rather than once or twice a year.

Q: In a one-bin inventory system the inventory Level is brought up to its predetermined maximum at a fixed time period (such as weekly).

Q: A one-bin system of inventory involves periodic replenishment no matter how few inventory items are needed.

Q: In a two-bin system for inventory, items are used from one bin and the second bin provides a large enough amount to ensure that the stock can be replenished before running out.

Q: A two-bin inventory system actually requires four physical bins to work.

Q: When stocked items are sold, the optimal inventory decision using marginal analysis is to stock that quantity where profit from the sale or use of the last unit is equal to or greater than the losses if the last unit remains unsold.

Q: The optimal stocking decision in inventory management, when using marginal analysis, occurs at the point where the benefits derived from carrying the next unit are more than the costs for that unit.

Q: Some inventory situations involve placing orders to cover only one demand period or to cover short-lived items at frequent intervals.

Q: In the fixed-time period model it is necessary to determine the inventory currently on hand to calculate the size of the order to place with a vendor.

Q: Safety stock is not necessary in any fixed-time period system.

Q: The standard fixed-time period model assumes that inventory is never counted but determined by EOQ measures.