Inventory Management True Or False

INVENTORY MANAGEMENT TRUE/FALSE 1. A major challenge in inventory management is to maintain a balance between inventory investment and customer service. True (Introduction, easy) 2. The overall objective of inventory management is balancing the cost of inventory against the cost of providing reasonable levels of customer service. True (Introduction, easy) 3. Which item to order and with which supplier the order should be placed are the two fundamental issues in inventory management. False (Introduction, moderate) 4. One function of inventory is to take advantage of quantity discounts. True (Functions of inventory, easy) 5. Work-in-process inventory is devoted to maintenance, repair, and operations. False (Functions of inventory, easy) 6. One function of inventory is to provide a hedge against inflation. True (Functions of inventory, easy) 7. ABC analysis classifies inventoried items into three groups, usually based on annual units or quantities used. False (Inventory management, easy) 8. ABC inventory analysis is based on the Pareto principle. True (Inventory management, easy) 9. In ABC analysis, "C" Items are the most tightly controlled. False (Inventory management, moderate) 10. Because ABC analysis emphasizes that all items in inventory are equally important, management resources must be equally devoted to all the items. False (Inventory management, moderate) 11. ABC analysis is based on the presumption that carefully controlling all items is necessary to produce important inventory savings. False (Inventory management, easy) 12. No matter what method of inventory management is used, record accuracy is of utmost importance. True (Inventory management, moderate) 13. Cycle counting is an inventory control technique exclusively used for cyclical items. False (Inventory management, moderate) 14. One advantage of cycle counting is that it eliminates annual inventory adjustments. True (Inventory management, moderate) 15. One advantage of cycle counting is that it maintains accurate inventory records. True (Inventory management, moderate) 16. In cycle counting, the frequency of item counting and stock verification usually varies from item to item depending upon the item's classification. True (Inventory management, moderate) 17. Retail inventory that is unaccounted for between receipt and time of sale is known as piflerage. False (Inventory management, moderate) 18. Service inventories don't really exist, since services are intangible. False (Inventory management, moderate) 19. Items like tires inventoried by an automobile manufacturer for use in the production of automobiles have independent demand. False (Inventory models, moderate) 20. The demand for automobiles would be considered a dependent demand. False (Inventory models, moderate) 21. The EOQ model is best suited for items whose demand is dependent on other products. False (Inventory models for independent demand, moderate) 22. In the simple EOQ model, if annual demand were to increase, the EOQ would increase proportionately. False (Inventory models for independent demand, moderate) 23. In the simple EOQ model, the EOQ would rise if the ordering cost were to increase. True (Inventory models for independent demand, moderate) 24. At the economic order quantity, holding costs are equal to purchasing costs. False (Inventory models for independent demand, moderate) 25. An advantage of the basic EOQ model is that it always results in a small order size. False (Inventory models for independent demand, moderate) 26. In the simple EOQ model, if the carrying cost were to double, the EOQ would also double. False (Inventory models for independent demand, moderate) 27. Referring to the EOQ model as a robust model means that it operates automatically with artificial intelligence. False (Inventory models for independent demand, moderate) 28. If demand and lead time are uniform and constant, there is no need for safety stock. True (Inventory models for independent demand, moderate) 29. Safety stock can serve as a buffer against uneven demand. True (Inventory models for independent demand, moderate) 30. The reorder point is the inventory level at which action is taken to replenish the stocked item. True (Inventory models for independent demand, moderate) 31. A production order quantity problem has a longer period between orders compared to an economic order quantity problem using the same inputs (except for the noninstantaneous receipt). True (Inventory models for independent demand, moderate) 32. Inventory models cannot be used to develop an inventory strategy unless quantity discounts are absent. False (Inventory models for independent demand, moderate) 33. In the quantity discount model, it is possible to have a cost-minimizing solution where annual ordering costs do not equal annual carrying costs. True (Inventory models for independent demand, moderate) 34. Service level is the complement of the probability of a stockout. True (Probabilistic models with constant lead time, moderate) 35. Safety stock in inventory systems depends only on the average demand during the lead time. False (Probabilistic models with constant lead time, moderate) 36. In a fixed-period inventory system, the quantity ordered is always equal to economic order quantity. False (Fixed-period systems, moderate) 37. One advantage of the fixed-period inventory system is that no physical count of inventory items occurs after an item is withdrawn from inventory. True (Fixed-period systems, moderate) 38. Fixed-period systems may have the same review periods for several inventory items. True (Fixed-period systems, moderate) 39. Fixed-period inventory systems typically carry less safety stock than reorder point models. False (Fixed-period systems, moderate) 40. In a fixed-period inventory model, orders are placed for exactly what is needed when it is needed. False (Fixed-period systems, moderate) MULTIPLE CHOICE 41. Which of the following is a function of inventory? a. to decouple or separate parts of the production process b. to decouple the firm from fluctuations in demand and provide a stock of goods that will provide a selection for customers c. to take advantage of quantity discounts d. to hedge against inflation e. All of the above are functions of inventory. e (Functions of inventory, moderate) 42. Which of the following would not generally be a motive for a firm to hold inventories? a. to decouple or separate parts of the production process b. to provide a stock of goods that will provide a selection for customers c. to take advantage of quantity discounts d. to minimize holding costs e. All of the above are functions of inventory. d (Functions of inventory, moderate) 43. All of the following statements about ABC analysis are true except a. inventory may be categorized by measures other than dollar volume b. it categorizes on-hand inventory into three groups based on annual dollar volume c. it is an application of the Pareto principle d. it states that all items require the same degree of control e. it states that there are the critical few and the trivial many inventory items d (Inventory management, moderate) 44. ABC analysis is based upon the principle that a. all items in inventory must be monitored very closely b. there are usually a few critical items, and many items which are less critical c. an item is critical if its usage is high d. the safety stock (in terms of volume) should be higher for A items than for C items e. an item is critical if its unit price is high b (Inventory management, moderate) 45. Which of the following statements about ABC analysis is false? a. ABC analysis is based on the presumption that controlling the few most important items produces the vast majority of inventory savings. b. In ABC analysis, "A" Items are tightly controlled, have accurate records, and receive regular review by major decision makers. c. In ABC analysis, "C" Items have minimal records, periodic review, and simple controls d. ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings. e. All of the above statements are true. d (Inventory management, moderate) 46. ABC analysis divides on-hand inventory into three classes, generally based upon a. item quality b. unit price c. the number of units on hand d. annual demand e. annual dollar volume e (Inventory management, moderate) 47. Cycle counting a. is a process by which inventory records are verified once a year b. provides a measure of inventory accuracy c. provides a measure of inventory turnover d. assumes that all inventory records must be verified with the same frequency e. assumes that the most frequently used items must be counted more frequently b (Inventory management, moderate) 48. Among the advantages of cycle counting is that it a. makes the annual physical inventory more acceptable to management b. does not require the detailed inventory records necessary when annual physical inventory is used c. does not require highly trained people d. allows more rapid identification of errors and consequent remedial action than is possible with annual physical inventory e. does not need to be performed for less expensive items d (Inventory management, moderate) 49. The two most basic inventory questions answered by the typical inventory model are a. timing and cost of orders b. quantity and cost of orders c. timing and quantity of orders d. order quantity and service level e. ordering cost and carrying cost c (Inventory models for independent demand, moderate) 50. A certain type of computer costs $1,000, and the annual holding cost is 25%. Annual demand is 10,000 units, and the order cost is $150 per order. What is the approximate economic order quantity? a. 16 b. 70 c. 110 d. 183 e. 600 b (Inventory models for independent demand, easy) 51. Most inventory models attempt to minimize a. the likelihood of a stockout b. the number of items ordered c. total inventory based costs d. the number of orders placed e. the safety stock c (Inventory models for independent demand, easy) 52. In the basic EOQ model, if the cost of placing an order doubles, and all other values remain constant, the EOQ will a. increase by about 41% b. increase by 100% c. increase by 200% d. increase, but more data is needed to say by how much e. either increase or decrease a (Inventory models for independent demand, moderate) 53. In the basic EOQ model, if D=6000 per year, S=$100, H=$5 per unit per month, the economic order quantity is approximately a. 25 b. 100 c. 490 d. 527 e. 6000 d (Inventory models for independent demand, moderate) 54. Which of the following statements about the basic EOQ model is true? a. If the ordering cost were to double, the EOQ would rise. b. If annual demand were to double, the EOQ would increase. c. If the carrying cost were to increase, the EOQ would fall. d. If annual demand were to double, the number of orders per year would increase. e. All of the above statements are true. e (Inventory models for independent demand, difficult) 55. Which of the following statements about the basic EOQ model is false? a. If the setup cost were to decrease, the EOQ would fall. b. If annual demand were to increase, the EOQ would increase. c. If the ordering cost were to increase, the EOQ would rise. d. If annual demand were to double, the EOQ would also double. e. All of the above statements are true. d (Inventory models for independent demand, moderate) 56. A product whose EOQ is 40 experiences a decrease in ordering cost from $90 per order to $10. The revised EOQ is a. three times as large b. one-third as large c. nine times as large d. one-ninth as large e. cannot be determined b (Inventory models for independent demand, difficult) 57. A product whose EOQ is 400 experiences a 50% increase in demand. The new EOQ is a. unchanged b. increased by less than 50% c. increased by 50% d. increased by more than 50% e. cannot be determined b (Inventory models for independent demand, difficult) 58. For a certain item, the cost-minimizing order quantity obtained with the basic EOQ model was 200 units and the total annual inventory cost was $600. The inventory carrying cost per unit per year for this item is a. $1.50 b. $2.00 c. $3.00 d. $150.00 e. not enough data to determine c (Inventory models for independent demand, difficult) 59. A product has demand of 4000 units per year. Ordering cost is $20 and holding cost is $4 per unit per year. The EOQ model is appropriate. The cost-minimizing solution for this product will cost _____ per year in total annual inventory costs. a. $400 b. $800 c. $1200 d. zero; this is a class C item e. cannot be determined because unit price is not known b (Inventory models for independent demand, moderate) 60. A product has demand of 4000 units per year. Ordering cost is $20 and holding cost is $4 per unit per year. The cost-minimizing solution for this product is to order a. all 4000 units at one time b. 200 units per order c. every 20 days d. 10 times per year e. none of the above b (Inventory models for independent demand, moderate) 61. The EOQ model with quantity discounts attempts to determine a. what is the lowest amount of inventory necessary to satisfy a certain service level? b. what is the lowest purchasing price? c. whether to use fixed-quantity or fixed-period order policy. d. how many units should be ordered? e. what is the shortest lead time? d (Inventory models for independent demand, moderate) 62. An inventory decision rule states "when the inventory level goes down to 14 gearboxes, 100 gearboxes will be ordered." Which of the following statements is true? a. One hundred is the reorder point, and 14 is the order quantity. b. Fourteen is the reorder point, and 100 is the order quantity. c. The number 100 is a function of demand during lead time. d. Fourteen is the safety stock, and 100 is the reorder point. e. none of the above b (Inventory models for independent demand, moderate) 63. Which of the following statements regarding the production order quantity model is true? a. It applies only to items produced in the firm's own production departments. b. It relaxes the assumption that all the order quantity is received at one time. c. It relaxes the assumption that the demand rate is constant. d. It minimizes the total production costs. e. It minimizes inventory. b (Inventory models for independent demand, moderate) 64. Which of the following statements about quantity discounts is false? a. The cost-minimizing solution may, or may not, be where annual holding costs equal annual ordering costs. b. In inventory management, item cost becomes relevant to inventory decisions only when a quantity discount is available. c. If carrying costs are expressed as a percentage of value, EOQ is larger at each lower price in the discount schedule. d. The larger annual demand, the less attractive a discount schedule will be. e. The smaller the ordering cost, the less attractive a discount schedule will be. d (Inventory models for independent demand, moderate) 65. When quantity discounts are allowed, the cost-minimizing order quantity a. is an EOQ quantity b. minimizes the sum of holding and ordering costs c. minimizes the unit purchase price d. may be a quantity below that at which one qualifies for that price e. minimizes the sum of holding, ordering, and product costs e (Inventory models for independent demand, moderate) 66. If the standard duration of demand is six per week, demand is 50 per week, and the desired service level is 95%, approximately what is the statistical safety stock? a. 8 units b. 10 units c. 16 units d. 64 units e. cannot be determined without lead time data e (Probabilistic models with constant lead time, moderate) 67. A specific product has demand during lead time of 100 units, with a standard deviation of 25 units. What safety stock (approximately) provides a 95% service level? a. 41 b. 55 c. 133 d. 140 e. 165 a (Probabilistic models with constant lead time, moderate) 68. Demand for dishwasher water pumps is 8 per day. The standard deviation of demand is 3 per day, and the order lead time is four days. The service level is 95%. What should the reorder point be? a. about 18 b. about 24 c. about 32 d. about 38 e. more than 40 e (Probabilistic models with constant lead time, moderate) 69. The purpose of safety stock is to a. replace failed units with good ones b. eliminate the possibility of a stockout c. eliminate the likelihood of a stockout due to erroneous inventory tally d. control the likelihood of a stockout due to the variability of demand during lead time e. protect the firm from a sudden decrease in demand d (Probabilistic models with constant lead time, moderate) 70. The proper quantity of safety stock is typically determined by a. minimizing an expected stockout cost b. carrying sufficient safety stock so as to eliminate all stockouts c. meeting 95% of all demands d. setting the level of safety stock so that a given stockout risk is not exceeded e. minimizing total costs d (Probabilistic models with constant lead time, moderate) 71. If demand is not uniform and constant, then stockout risks can be controlled by a. increasing the EOQ b. placing an extra order c. raising the selling price to reduce demand d. adding safety stock e. reducing the reorder point d (Probabilistic models with constant lead time, moderate) 72. A disadvantage of the fixed-period inventory system is that a. it involves higher ordering costs than the fixed quantity inventory system b. additional inventory records are required c. the average inventory level is decreased d. since there is no count of inventory during the review period, a stockout is possible e. orders usually are for larger quantities d (Fixed-period systems, moderate) 73. An advantage of the fixed-period inventory system is that a. the supplier will be more cooperative b. there is no physical count of inventory items when an item is withdrawn c. no inventory records are required d. orders usually are for smaller order quantities e. the average inventory level is reduced b (Fixed-period systems, moderate) FILL-IN-THE BLANK 74. _____________ inventory is material that is usually purchased, but has yet to enter the manufacturing process. Raw material (Functions of inventory, easy) 75. ______________ is a method for dividing on-hand inventory into three classifications based on annual dollar volume. ABC analysis (Inventory management, easy) 76. _____________ is a continuing reconciliation of inventory with inventory records. Cycle counting (Inventory management, moderate) 77. __________ refers to a small amount of theft of inventory. Pilferage (Inventory management, moderate) 78. ___________ is the amount of time required to prepare a machine or process for production. Setup time (Inventory management, moderate) 79. A(n) __________ model gives satisfactory answers even with substantial variations in its parameters. robust (Inventory management, moderate) 80. The _____________ is the inventory level (point) at which action is taken to replenish the stocked item. reorder point (ROP) (Inventory management, moderate) 81. _____________ is extra stock that is carried to serve as a buffer. Safety stock (Inventory management, easy) 82. A(n) ______________ is a reduced price for items purchased in large quantities. quantity discount (Inventory management, easy) 83. ____________ is the complement of the probability of a stockout. Service level (Probabilistic models with constant lead time, moderate) 84. A(n) ____________ system triggers inventory ordering on a uniform time frequency. fixed-period (Fixed-period systems, moderate) SHORT ANSWERS 85. What are the main reasons that an organization has inventory? Reasons to carry inventory include to decouple or separate parts of the production process, to decouple the firm from fluctuations in demand and provide a stock of goods that will provide a selection for customers, to take advantage of quantity discounts, and to hedge against inflation. (Introduction, moderate) 86. What are the four types of inventory? Provide a simple example of each: Examples will vary. The four types of inventory are raw material, work-inprocess, maintenance/repair/operating supply (MRO), and finished goods. (Functions of inventory, easy) 87. What are MRO inventories? Why do they exist? MRO inventories are devoted to maintenance/repair/operating supplies. They exist because the need and timing for maintenance and repair of some equipment are unknown. (Functions of inventory, easy) 88. What is ABC inventory analysis? ABC inventory analysis is a method for dividing on-hand inventory into three classifications based on annual dollar volume. (Inventory management, moderate)