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ch13 Key

1. One important use of inventories in manufacturing is to decoupleoperations through the use of work in process inventories. TRUEecoupling operations is an important use of inventories.

!. The o"#ective of inventory management is to minimi$e the cost of holdinginventory. %&'(EThe o"#ective of inventory management is to allow satisfactory customerservice while keeping costs down.

3. & retail store that carries twice the inventory as its competitor will providetwice the customer service level. %&'(EThere is a limit to how high service level can go) if the competitor*s servicelevel is +,- the retailer can*t dou"le that.

/. The overall o"#ective of inventory management is to achieve satisfactorylevels of customer service while keeping inventory costs reasona"le. TRUEThis is the overall o"#ective of inventory management.

0. The two main concerns of inventory control relate to the costs and thelevel of customer service. TRUEThese are the essential facets of inventory control.

. To provide satisfactory levels of customer service while keeping inventorycosts within reasona"le "ounds two fundamental decisions must "e madea"out inventory2 the timing and si$e of orders. TRUE

These are the fundamental decisions regarding inventory control.

. 4 recorders would "e an e5ample of independent demand items. TRUE6omponents of the 4 recorders would "e dependent demand items.

+. Reorder point models are primarily used for dependent demand items.%&'(EReorder point models are primarily used for independent demand items.

1,. &n e5ample of inventory holding cost is the cost of moving goods totemporary storage after receipt from a supplier. %&'(E

These are ordering costs.

11. ecoupling operations applies to the railroad industry. %&'(Eecoupling refers to "u7ering operations in manufacturing.

1!. 8nterest insurance and opportunity costs are all associated with holdingcosts. TRUEThese are holding costs.

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13. The &9:96 approach involves classifying inventory items "y unit cost withe5pensive items classi;ed as models are concerned with the si$e of orders.

1?. The average inventory level is inversely related to order si$e. %&'(EThe average inventory level is positively related to order si$e.

1. The average inventory level and the num"er of orders per year areinversely related2 &s one increases the other decreases. TRUEThese are inversely related.

1+. The EO> should "e regarded as an appro5imate @uantity rather than ane5act @uantity. Thus rounding the calculated value is accepta"le. TRUEThe total cost function is relatively Aat so rounding costs little.

!,. 6arrying cost is a function of order si$e) the larger the order the higherthe inventory carrying cost. TRUE'arger order @uantities lead to higher inventory carrying cost.

!1. Understocking an inventory item is a sure sign of inade@uate inventorycontrol. %&'(EBaving an occasional stockout is not necessarily a sign of inade@uate

inventory control.

!!. &nnual ordering cost is inversely related to order si$e. TRUE&nnual ordering cost decreases as order si$e increases.

!3. The total cost curve is relatively Aat near the EO>. TRUEThus appro5imating the EO> can "e a very good solution.

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!/. :ecause price isn*t a factor in the EO> formula @uantity discounts won*ta7ect EO> calculations. %&'(E8f @uantity discounts are o7ered the EO> might vary "ased on di7erentholding costs.

!0. 8n the @uantity discount model if holding costs are given as a percentageof unit price a graph of the total cost curves will have the same EO> foreach curve. %&'(ETotal cost curves will di7er across the price levels.

!. 8n the @uantity discount model the optimum @uantity will always "efound on the lowest total cost curve. %&'(EThe optimum @uantity might actually "e when the discount is passed up.

!?. ROC models indicate to managers the time "etween orders. %&'(EROC models indicate when with regard to on9hand inventory orders should

"e placed.

!. Dhen to order can "e calculated "y the ROC and e5pressed as a @uantity.TRUE

ROC models indicate when with regard to on9hand inventory orders should"e placed.

!+. The rate of demand is an important factor in determining the ROC. TRUEThe demand rate multiplied "y the lead time is a ma#or part of the ROC.

3,. The inventory value of the supply chain e5ceeds the inventory value of

the organi$ation*s work in process inventory. TRUEThere can "e raw materials and ;nished goods inventory at the organi$ation.Other organi$ations in the supply chain will have inventories too.

31. (afety stock is held "ecause we anticipate future demand. FALSE(afety stock is held "ecause we anticipate Auctuations in future demand orin lead time.

3!. 4aria"ility in demand andor lead time can "e compensated for "y safetystock. TRUE(afety stock can "e used to accommodate these.

33. (olving @uality pro"lems can lead to lower inventory levels. TRUE'eaning out the organi$ation can "e facilitated "y solving @uality pro"lems.

3/. ROC models assume that demand during lead time is composed of aseries of dependent daily demands. FALSEROC models assume that demand during lead time is composed of a series ofindependent daily demands.

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30. Cro;t margins tend to "e inversely related to inventory turns. TRUEThis is typically the case.

3. 8n the ;5ed9order interval model the order si$e is the same for each

order. FALSEOrder si$e varies from order to order in a ;5ed9order interval model.

3?. The ;5ed9order interval model re@uires a continuous monitoring ofinventory levels. FALSEThe ;5ed9order interval model leads to periodic monitoring of inventorylevels.

3. iscrete stocking levels are used when an organi$ation doesn*t wantvisi"ility of inventory levels. FALSEiscrete stocking refers to having to stock a discrete num"er of units.

3+. The ;5ed9order interval model re@uires a larger amount of safety stockthan the ROC model for the same risk of a stockout. TRUE%i5ed9order intervals typically carry more safety stock.

/,. The single9period model can "e very helpful in determining when toorder. FALSEThe single9period model helps determine how many to order.

/1. The single9period model can "e very helpful in determining how much toorder. TRUE

The single9period model helps determine how many to order.

/!. =onitoring inventory turns over time can "e used as a measure ofperformance. TRUEFreater turnover often implies "etter performance.

/3. & single9period model would "e used mainly "y organi$ations going outof "usiness. FALSEThe single9period model applies to many regularly occurring circumstances.

//. The "asic EO> model ignores the purchasing cost. TRUE

Only if @uantity discounts are o7ered does purchasing cost enter into EO>analysis.

/0. Dhen the item is o7ered for resale shortage costs in the single9periodmodel can include a charge for loss of customer goodwill. TRUEFreater loss of goodwill would e@uate with a higher shortage cost.

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/. 8n the single9period model the service level is the pro"a"ility thatdemand will not e5ceed the stocking level in any period. TRUE8f demand e5ceeds the stocking level a stockout as occurred.

/?. & @uantity discount will lower the reorder point. FALSE

The reorder point is independent of @uantity discounts.

/. 8t is critical that the e5act @uantity calculated in the EO> model "eordered. FALSE:ecause the total cost curve is Aat modest rounding of the EO> ispermissi"le.

/+. (afety stock eliminates all stock outs. FALSE(afety stock only ensures that a given likelihood of stock outs.

0,. The calculation of safety stock re@uires knowledge of demand and lead

time varia"ility. TRUE:oth of these play a role in the calculation of safety stock.

01. The two "asic issues in inventory are how much to order and when toorder. TRUE>uantity and timing are the two "asic issues in inventory management.

0!. 6ycle counting can "e used in motorcycle inventory control. TRUE6ycle counting can also "e used in automo"ile inventory control.

03. Using the EO> model the higher an item*s carrying costs the more

fre@uently it will "e ordered. TRUE&s carrying costs increase the optimal order @uantity decreases.

0/. The cycle time represents the time "etween reorder point and receipt oforder. FALSEThe cycle time represents the time "etween orders.

00. The cost of placing an order is a function of order si$e. FALSEThe cost of placing an order is typically unrelated to order si$e.

0. &ll stock outs must "e avoided. FALSE

=ost of the time it would "e too costly to avoid all stockouts.

0?. 8n the "asic EO> model annual holding cost is one9half of the totalannual cost for all items purchased. FALSE&nnual holding cost e@uals half the product of the order @uantity and the per9unit9per9year holding cost.

0. >uantity discounts are generally given for large num"er of orders. FALSE

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>uantity discounts are given for smaller "ut larger orders.

0+. The larger the num"er of orders placed the larger the average level ofinventory. FALSE=ore orders means smaller @uantities which means lower average inventory.

,. Dhich of the following is not one of the assumptions of the "asic EO>modelG &. &nnual demand re@uirements are known and constant. :. 'eadtime does not vary. 6. Each order is received in a single delivery. D. >uantitydiscounts are availa"le. E. &ll of the a"ove are necessary assumptions.8n the "asic EO> model @uantity discounts are not availa"le.

1. Dhich of the following interactions with vendors would potentially lead toinventory reductionsG A. reduce lead times :. increase safety stock 6. lessfre@uent purchases . larger "atch @uantities E. longer order intervalsReducing lead times would have the e7ect of reducing safety stock

re@uirements and therefore reducing inventories.

!. & non9linear cost related to order si$e is the cost of2 &. interest :.insurance 6. ta5es D. receiving E. spaceReceiving cost is a non9linear cost associated with order si$e.

3. 8n a two9"in inventory system the amount contained in the second "in ise@ual to the2 A. ROC :. EO> 6. amount in the ;rst "in . optimum stockinglevel E. safety stockThe second "in e@uals the amount needed during lead time in addition toany safety stock.

/. Dhen carrying costs are stated as a percentage of unit price theminimum points on the total cost curves2 &. 'ine up :. E@ual $ero C. o notline up . 6annot "e calculated E. epend on the percentage assigned6urves aren*t symmetrical if holding cost di7ers across price "reaks.

0. airy items fresh fruit and newspapers are items that2 &. do not re@uiresafety stocks :. cannot "e ordered in large @uantities C. are su"#ect todeterioration and spoilage . re@uire that prices "e lowered every two daysE. have minimal holding costseterioration and spoilage increase holding costs.

. Dhich of the following is least likely to "e included in order costsG &.processing vendor invoices for payment :. moving delivered goods totemporary storage 6. inspecting incoming goods for @uantity . taking aninventory to determine how much is needed E. temporary storage ofdelivered goods(torage costs are holding costs.

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?. 8n an &9:96 system the typical percentage of the num"er of items ininventory for & items is a"out2 A. 1, :. 3, 6. 0, . ?, E. +,6lass & items represent a relatively small portion of items.

. 8n the &9:96 classi;cation system items which account for ;fteen percent

of the total dollar9volume for a ma#ority of the inventory items would "eclassi;ed as2 &. & items :. : items C. 6 items . & items plus : items E. :items plus 6 itemsThese would "e class 6 items.

+. 8n the &9:96 classi;cation system items which account for si5ty percentof the total dollar9volume for few inventory items would "e classi;ed as2 A. &items :. : items 6. 6 items . & items plus : items E. : items plus 6 itemsThese would "e class & items.

?,. The purpose of Hcycle countingH is to2 &. count all the items in inventory

:. count "icycles and motorcycles in inventory C. reduce discrepancies"etween inventory records and actual . reduce theft E. count 1,- of theitems each month6ycle counting is intended to improve inventory record accuracy.

?1. The EO> model is most relevant for which one of the followingG &.ordering items with dependent demand :. determination of safety stock 6.ordering perisha"le items . determining ;5ed interval order @uantities E.determining ;5ed order @uantitiesThe EO> is a ;5ed9@uantity approach.

?!. Dhich is not a true assumption in the EO> modelG &. Croduction rate isconstant :. 'ead time doesn*t vary C. Io more than 3 items are involved .Usage rate is constant E. Io @uantity discountsEO> can "e used across multiple items.

?3. 8n a supermarket a vendor*s restocking the shelves every =ondaymorning is an e5ample of2 &. safety stock replenishment :. economic order@uantities 6. reorder points D. ;5ed order interval E. "lanket orderingThis would "e a weekly interval model.

?/. & cycle count program will usually re@uire that

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?. 8n the "asic EO> model if annual demand dou"les the e7ect on the EO>is2 &. 8t dou"les. :. 8t is four times its previous amount. 6. 8t is half itsprevious amount. . 8t is a"out ?, percent of its previous amount. E. 8tincreases "y a"out /, percent.The EO> does not increase linearly with demand.

??. 8n the "asic EO> model if lead time increases from ;ve to 1, days theEO> will2 &. dou"le :. increase "ut not dou"le 6. decrease "y a factor of twoD. remain the same E. none of the a"oveThe EO> is independent of lead time.

1. Dhich of the following is not true for Economic Croduction >uantitymodelG &. Usage rate is constant. :. Croduction rate e5ceeds usage rate. 6.Run si$e e5ceeds ma5imum inventory. D.There are no ordering or setupcosts. E. &verage inventory is one9half ma5imum inventory.There are ordering or setup costs in the EC> model.

!. Fiven the same demand setupordering costs and carrying costs theEO> calculated using incremental replenishment will "e JJJJJJJJJJJJ ifinstantaneous replenishment was assumed2 A. greater than the EO> :.e@ual to the EO> 6. smaller than the EO> . greater than or e@ual to theEO> E. smaller than or e@ual to the EO>The EC> will "e smaller than the EO>.

3. The introduction of @uantity discounts will cause the optimum order@uantity to "e2 &. smaller :. unchanged 6. greater . smaller or unchangedE. unchanged or greater

>uantity discounts cannot make the optimum @uantity "e smaller.

/. & ;ll rate is the percentage of JJJJJ ;lled "y stock on hand. &. (hipmentsB. emand 6. 8nventory . (afety stock E. 'ead timeThe ;ll rate is the percentage of demand ;lled directly from on9handinventory.

0. 8n the @uantity discount model with carrying cost stated as a percentageof unit purchase price in order for the EO> of the lowest curve to "eoptimum it must2 &. have the lowest total cost B. "e in a feasi"le range 6."e to the left of the price "reak @uantity for that price . have the largest

@uantity compared to other EO>*s E. none of the a"ove8f not feasi"le that @uantity will have to "e ad#usted upward and then totalcost calculated.

. Dhich one of the following is not generally a determinant of the reorderpointG &. rate of demand :. length of lead time 6. lead time varia"ility .stockout risk E. purchase costCurchase cost does not enter into reorder point calculations.

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?. 8f no variations in demand or lead time e5ist the ROC will e@ual2 &. theEO> B. e5pected usage during lead time 6. safety stock . the service levelE. the EO> plus safety stockThe ROC will "e the demand rate times the lead time.

+. Dhich one of the following is implied "y a Hlead timeH service level of +0percentG &. &ppro5imately +0 percent of demand during lead time will "esatis;ed. :. &ppro5imately +0 percent of inventory will "e used during leadtime. 6. The pro"a"ility is +0 percent that demand during lead time wille5actly e@ual the amount on hand at the "eginning of lead time. D.Thepro"a"ility is +0 percent that demand during lead time will not e5ceed theamount on hand at the "eginning of lead time. E. none of the a"ove& stock only occurs if demand during lead time e5ceeds the ROC.

+,. Dhich one of the following is implied "y an HannualH service level of +0

percentG &. &ppro5imately +0 percent of demand during lead time will "esatis;ed. :. The pro"a"ility is +0 percent that demand will e5ceed supplyduring lead time. 6. The pro"a"ility is +0 percent that demand will e@ualsupply during lead time. . The pro"a"ility is +0 percent that demand will note5ceed supply during lead time. E. Ione of the a"ove.The annual service level is usually greater than the cycle service level andthus the risk of a stockout during lead time is much smaller than 0 percent.

+3. &ll of the following are possi"le reasons for using the ;5ed order intervalmodel e5cept2 &. (upplier policy encourages use. :. Frouping orders cansave in shipping costs. C.The re@uired safety stock is lower than with an

EO>ROC model. . 8t is suited to periodic checks of inventory levels ratherthan continuous monitoring. E. 6ontinuous monitoring is not practical.(afety stock is higher in a ;5ed order interval model.

+/. Dhich of these products would "e most apt to involve the use of a single9period modelG &. gold coins :. hammers C. fresh ;sh . calculators E. fro$encornThe perisha"ility of fresh ;sh makes it more appropriate for a single9periodmodel.

+0. 8n a single9period model if shortage and e5cess costs are e@ual then the

optimum service level is2 &. , :. .33 C. .0, . .? E. none of theseThe ratio of shortage cost to shortage plus e5cess cost is ,.0.

+. 8n a single9period model if shortage cost is four times e5cess cost thenthe optimum service level is JJJ percent. &. 1,, B. , 6. , . /, E. !,The ratio of shortage cost to shortage plus e5cess cost is ,..

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+?. 8n the single9period model if e5cess cost is dou"le shortage cost theappro5imate stockout risk assuming an optimum service level is JJJpercent. &. 1,, B. ? 6. 0, . 33 E. 0The ratio of shortage cost to shortage plus e5cess cost is ,.?.

++. The management of supply chain inventories focuses on2 &. internalinventories :. e5ternal inventories C. "oth internal and e5ternal inventories. safety stock elimination E. optimi$ing reorder points(upply chain inventory involves "oth internal and e5ternal inventories.

1,,. &n operations strategy for inventory management should work towards2&. increasing lot si$es B. decreasing lot si$es 6. increasing safety stocks .decreasing service levels E. increasing order @uantities8f lot si$es can "e reduced operations "ecome leaner.

1,1. 6ycle stock inventory is intended to deal with JJJJJJJJ. &. e5cess costs

:. shortage costs 6. stockouts D. e5pected demand E. @uantity discounts6ycle stock is intended to deal with e5pected demand while safety stock isintended to reduce stockouts resulting from demand uncertainty.

1,!. &n operations strategy which recogni$es high carrying costs andreduces ordering costs will result in2 &. unchanged order @uantities :. slightlydecreased order @uantities C. greatly decreased order @uantities . slightlyincreased order @uantities E. greatly increased order @uantitiesCrocesses will "e leaned leading to smaller order @uantities.

1,3. The need for safety stocks can "e reduced "y an operations strategy

which2 &. increases lead time :. increases lead time varia"ility 6. increaseslot si$es . decreases ordering costs E. decreases lead time varia"ilityReduced lead time varia"ility will reduce the si$e of safety stocks.

1,0. Dith an &9:96 system an item that had a high demand "ut a low annualdollar volume would pro"a"ly "e classi;ed as2 &. & :. : C. 6 . none of these'ow dollar volume items tend to "e classi;ed as 6 items.

1,. The ;5ed order interval model would "e most likely to "e used for thissituation2 &. & company has switched from mass production to leanproduction. :. Croduction is done in "atches. 6. (pare parts are ordered when

a new machine is purchased. D. Frouping orders can save shipping costs. E.none of these8f ordering costs can "e saved "y grouping orders the ;5ed order intervalmodel is especially attractive.

1,?. Dhich item would "e least likely to "e ordered under a ;5ed orderinterval systemG &. te5t"ooks at a college "ookstore B. auto parts at an

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assem"ly plant 6. cards at a gift shop . canned peas at a supermarket E.none of these&uto parts at an assem"ly plant would "e unlikely candidates for a ;5edorder interval system.

1,. Dhich one of these would not "e a factor in determining the reorderpointG A. the EO> :. the lead time 6. the varia"ility of demand . thedemand or usage rate E. all are factorsThe ROC is independent of the EO>.