Finance Quiz 5 Practice

1. Which one of the following is not generally a determinant of the reorder point? a. stockout risk b. lead time variability c. rate of demand d. length of lead time e. purchase cost 2. Which of the following factors is (are) not included in carrying cost? a. Spoilage b. Obsolescence c. cost of capital d. inspecting incoming inventory e. warehousing overhead costs 3. which of the following statement is false? a. The service level is the probability that the amount of inventory on hand during the lead time is sufficient to meet the demand. b. In the periodic review inventory system, the time between orders is variable and the order size is constant. c. When there is probabilistic demand in a multi-period model, the inventory level will not decrease smoothly and can fall below 0 d. Component parts or materials used in the production process to produce a final product are referred to as dependent demand items e. Continuous inventory systems often incorporate information technology to improve the speed and accuracy of data entry 4. The probability that the inventory available during the lead time is called a. Safety stock b. Service level c. No correct answer d. Stockout risk e. Expected lead time demand 5. Which of the following statement is true? a. Safety stock eliminates all stockouts. b. Periodic review system require smaller safety stock levels than corresponding continuous review systems c. The fixed-time-period model requires a continuous monitoring of inventory levels d. When the item is offered for resale, shortage costs in the single-period model can include a charge for loss of customer goodwill e. A stockout occurs when supply exceeds demand during the lead time. 6. The annual demand for a product has been projected at 2,000 units. This demand is assumed to be constant throughout the year. The ordering cost is $20 per order, and the holding cost is 20 percent of the purchase cost. Currently, the purchase cost is $40 per unit. There are 250 working days per year. Whenever an order is placed, it is known that the entire order will arrive on a truck in 6 days. Currently, the company is ordering 500 units each time an order is placed. What should be the reorder point (excluding any safety stock) under the current policy? a. 200 b. 48 c. No correct answer d. 250 e. 500 7. The annual demand for a product has been projected at 2,000 units. This demand is assumed to be constant throughout the year. The ordering cost is $20 per order, and the holding cost is 20 percent of the purchase cost. Currently, the purchase cost is $40 per unit. There are 250 working days per year. Whenever an order is placed, it is known that the entire order will arrive on a truck in 6 days. How many units should the company order each time an order is placed if the company wishes to minimize total inventory cost? a. 200 b. 48 c. No correct answer d. 250 e. 500 8. In a single-period inventory situation, the probabilities that demand will be 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. 0.6 b. 0.9 c. 0.8 d. 0.7 e. 0.5 9. The manager of the WOK Multi Store (which never closes) sells four cases of BW beer each day. Order costs are $8.00 per order, and BW beer costs $.80 per six-pack (each case of Stein beer contains four six-packs). Orders arrive three days from the time they are placed. Daily holding costs are equal to 5 percent of the cost of the beer. If he were to order 16 cases of BW beer at a time, what would be the length of an order cycle? a. 25 days b. 4 days c. 1 day d. 20 days e. 3 days 10. The manager of the Quick Stop Corner Convenience Store (which never closes) sells four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer costs $.80 per six-pack (Each case of Stein beer contains four six-packs). Orders arrive three days from the time they are placed. Daily holding costs are equal to 5 percent of the cost of the beer. What is the economic order quantity for Stein beer? a. 8 cases b. 11 cases c. 14 cases d. 20 cases 11. The manager of the Quick Stop Corner Convenience Store (which never closes) sells four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer costs $.80 per six-pack (Each case of Stein beer contains four six-packs). Orders arrive three days from the time they are placed. Daily holding costs are equal to 5 percent of the cost of the beer. If he were to order 16 cases of Stein beer at a time, what would be the daily total inventory costs, EXCLUDING the cost of the beer? a. $2.00 b. $4.00 c. $1.28 d. $3.28 12. A product has a normally distributed usage with an average daily demand of 400 units and a daily standard deviation of 50 units. Currently, the lead time for the item is 5 days and the company maintains a 95% service level for the production. If the lead time can be reduced to 4 days, what happens to safety stock if the company wants to maintain a 95% service level? a. The safety stock is increase by 19 to 203 units b. The safety stock is reduced by 28 to 156 units c. The safety stock is reduced by 19 to 165 units d. The safety stock remains at 184 units e. No current answer 13. A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate over the 365 days that it is open. The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the restaurant orders the economic order quantity, then the time between orders (order cycle) is a. 125 days b. 29.2 days c. 75.3 days d. 32.8 days 14. Annual demand for a product is 40,000 units. The product is used at a constant rate over the 365 days the company is open every year. The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00. If the company orders according to the economic order quantity (EOQ) formula then its total annual inventory cost for this product would be a. $100,000 b. $50,000. c. $5,000. d. $2,500.