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OM 12

A stock or store of goods is called a(n):

A. bundler.

B. servicer.

C. retailer.

D. supply chain.

E. inventory.

E
Which of the following is typically the largest of all inventory costs?

A. shortage cost

B. purchase cost

C. holding cost

D. ordering cost

E. pipeline cost

B
Even though it is often the case that no cash outflows result when demand exceeds capacity, __________ can nevertheless be experienced in those circumstances.

A. foreorder costs

B. service costs

C. shortage costs

D. holding costs

E. setup costs

C
If there are shipping cost economies that result from bundling orders for different items together, the __________ model becomes a relatively more attractive option.

A. multi-period

B. reorder-point

C. fixed-order-quantity

D. fixed-order-interval

E. multi-item

D
Average demand for a particular item is 1,200 units per year. It costs $100 to place an order for this item, and it costs $24 to hold one unit of this item in inventory for one year. If the fixed-order-interval model is chosen in this instance, how often (on average) will this item be ordered?

A. once a month

B. once every other month

C. twice a month

D. twice every three months

E. three times every two months

A
Weekly demand for a particular item averages 30 units, with a standard deviation of 4. This item is managed with a fixed-order-interval model. The order interval is three weeks, and this item has a certain lead time of one week. The desired service level is 97.5 percent. Assume that it is now time to place another order, and there are 43 units on hand. How many units should be ordered?

A. 120

B. 93

C. 136

D. 46

E. 84

B
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. Ordering and holding costs have been estimated reasonably accurately.

D
Which of the following interactions with vendors would potentially lead to inventory reductions?

A. reduced lead times

B. increased safety stock

C. less frequent purchases

D. larger batch quantities

E. longer order intervals

A
A nonlinear cost related to order size is the cost of:

A. interest.

B. insurance.

C. taxes.

D. receiving.

E. space.

C
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.

A
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.

C
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.

C
Which of the following is least likely to be included in order costs?

A. processing vendor invoices for payment

B. processing purchase order

C. inspecting incoming goods for quantity

D. taking an inventory to determine how much is needed

E. temporary storage of delivered goods

E
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.

A
In the A-B-C classification system, items which account for 15 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.

C
In the A-B-C classification system, items which account for 60 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.

A
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 quantities.

D. reduce theft.

E. count 10 percent of the items each month.

C
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

E
Which is not a true assumption in the EOQ model?

A. Production rate is constant.

B. Lead time does not vary.

C. No more than three items are involved.

D. Usage rate is constant.

E. No quantity discounts.

C
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 intervals.

E. blanket ordering.

D
A cycle count program will usually require that A items be counted:

A. daily.

B. once a week.

C. monthly.

D. quarterly.

E. more often than annually.

E
A risk avoider would want ______ safety stock.

A. less

B. more

C. the same

D. zero

E. 50 percent

B
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.

E
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 2.

D. remain the same.

E. increase, but more information is needed to calculate exactly how much.

D
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. 600.

A
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.

B
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.

D
Which of the following is not true for the 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.

D
Given the same demand, setup/ordering costs, and carrying costs, the EPQ 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

A
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.

E
A fill rate is the percentage of _____ filled by stock on hand.

A. shipments

B. demand

C. inventory

D. safety stock

E. lead time

B
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

E
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.

B
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 times 2

B. 20 times 10

C. 2 times the square root of 20

D. 2 times the square root of 10

E. 400 times the square root of 10

C
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.

C
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

C
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. .75.

C
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

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

A. 100

B. 67

C. 50

D. 33

E. 5

B
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. .5

B. .6

C. .7

D. .8

E. .9

C
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.

C
An operations strategy for inventory management should work toward:

A. increasing lot sizes.

B. decreasing lot sizes.

C. increasing safety stocks.

D. decreasing service levels.

E. increasing order quantities.

B
Cycle stock inventory is intended to deal with:

A. excess costs.

B. shortage costs.

C. stockouts.

D. expected demand.

E. quantity discounts.

D
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.

C
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.

E
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.

E
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.

C
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. Demand is highly variable

D
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

B
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

A
A manufacturer is contemplating a switch from buying to producing a certain item. Setup cost would be the same as ordering cost. The production rate would be about double the usage rate. Compared to the EOQ, the economic production quantity would be approximately:

A. the same.

B. 20 percent larger.

C. 40 percent larger.

D. 20 percent smaller.

E. 40 percent smaller.

C
A manufacturer is contemplating a switch from buying to producing a certain item. Setup cost would be the same as ordering cost. The production rate would be about double the usage rate. Compared to the EOQ, the maximum inventory would be approximately:

A. 70 percent higher.

B. 30 percent higher.

C. the same.

D. 30 percent lower.

E. 70 percent lower.

D
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.

At what point should he reorder Stein beer?

A. 0 cases remaining

B. 4 cases remaining

C. 12 cases remaining

D. 16 cases remaining

E. 20 cases remaining

C
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 length of an order cycle?

A. .25 days

B. 3 days

C. 1 day

D. 4 days

E. 20 days

D
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 average inventory level?

A. 4 cases

B. 12 cases

C. 8 cases

D. 20 cases

E. 16 cases

C
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

E. $2.56

C
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

E. 32 cases

D
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and carrying costs are 4 cents per pound per day. Lead time for each order is three days, and the pepperoni itself costs $3.00 per pound. At what point should she reorder pepperoni?

A. 20 pounds remaining

B. 40 pounds remaining

C. 60 pounds remaining

D. 80 pounds remaining

E. 100 pounds remaining

C
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and carrying costs are 4 cents per pound per day. Lead time for each order is three days, and the pepperoni itself costs $3.00 per pound. If she were to order 80 pounds of pepperoni at a time, what would be the length of an order cycle?

A. 0 days

B. 0.25 days

C. 3 days

D. 4 days

E. 5 days

D
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and carrying costs are 4 cents per pound per day. Lead time for each order is three days, and the pepperoni itself costs $3.00 per pound. If she were to order 80 pounds of pepperoni at a time, what would be the average inventory level?

A. 20 pounds

B. 40 pounds

C. 60 pounds

D. 80 pounds

E. 100 pounds

B
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and carrying costs are 4 cents per pound per day. Lead time for each order is three days, and the pepperoni itself costs $3.00 per pound. If she were to order 80 pounds of pepperoni at a time, what would be the total daily costs, including the cost of the pepperoni?

A. $60.00

B. $63.20

C. $64.00

D. $64.10

E. $65.00

D
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and carrying costs are 4 cents per pound per day. Lead time for each order is three days, and the pepperoni itself costs $3.00 per pound. What is the economic order quantity for pepperoni?

A. 20 pounds

B. 40 pounds

C. 60 pounds

D. 80 pounds

E. 100 pounds

E
The Operations Manager for Shadyside Savings & Loan orders cash from her home office for her very popular “BIG BUCKS” automated teller machine, which only dispenses $100 bills. She estimates that this machine dispenses an average of 12,500 bills per month, and that carrying a bill in inventory costs 10 percent of its value annually. She knows that each order for these bills costs $300 for clerical and armored car delivery costs, and that order lead time is six days. Assuming a 30-day month, at what point should bills be reordered?

A. 0 bills remaining

B. 417 bills remaining

C. 2,500 bills remaining

D. 10,000 bills remaining

E. 12,500 bills remaining

C
The Operations Manager for Shadyside Savings & Loan orders cash from her home office for her very popular “BIG BUCKS” automated teller machine, which only dispenses $100 bills. She estimates that this machine dispenses an average of 12,500 bills per month, and that carrying a bill in inventory costs 10 percent of its value annually. She knows that each order for these bills costs $300 for clerical and armored car delivery costs, and that order lead time is six days. Assuming a 30-day month, if she were to order 6,000 bills at a time, what would be the length of an order cycle?

A. .48 days

B. 2.08 days

C. 6 days

D. 8.4 days

E. 14.4 days

E
The Operations Manager for Shadyside Savings & Loan orders cash from her home office for her very popular “BIG BUCKS” automated teller machine, which only dispenses $100 bills. She estimates that this machine dispenses an average of 12,500 bills per month, and that carrying a bill in inventory costs 10 percent of its value annually. She knows that each order for these bills costs $300 for clerical and armored car delivery costs, and that order lead time is six days. If she were to order 6,000 bills at a time, what would be the dollar value of the average inventory level?

A. $3,000

B. $6,000

C. $12,500

D. $300,000

E. $600,000

D
The Operations Manager for Shadyside Savings & Loan orders cash from her home office for her very popular “BIG BUCKS” automated teller machine, which only dispenses $100 bills. She estimates that this machine dispenses an average of 12,500 bills per month, and that carrying a bill in inventory costs 10 percent of its value annually. She knows that each order for these bills costs $300 for clerical and armored car delivery costs, and that order lead time is six days. If she were to order 6,000 bills at a time, what would be the average monthly total costs, EXCLUDING the value of the bills?

A. $625

B. $1,250

C. $2,500

D. $3,125

E. $37,500

D
The Operations Manager for Shadyside Savings & Loan orders cash from her home office for her very popular “BIG BUCKS” automated teller machine, which only dispenses $100 bills. She estimates that this machine dispenses an average of 12,500 bills per month, and that carrying a bill in inventory costs 10 percent of its value annually. She knows that each order for these bills costs $300 for clerical and armored car delivery costs, and that order lead time is six days. What is the economic order quantity?

A. 600 bills

B. 3,000 bills

C. 949 bills

D. 6,215 bills

E. 12,500 bills

B
The materials manager for a billiard ball maker must periodically place orders for resin, one of the raw materials used in producing billiard balls. She knows that manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04 per day to carry a kilogram of resin in inventory. She also knows that the order costs for resin are $100 per order, and that the lead time for delivery is four days. If the order size was 1,000 kilograms of resin, what would be the average inventory level?

A. 50 kilograms

B. 200 kilograms

C. 500 kilograms

D. 800 kilograms

E. 1,000 kilograms

C
The materials manager for a billiard ball maker must periodically place orders for resin, one of the raw materials used in producing billiard balls. She knows that manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04 per day to carry a kilogram of resin in inventory. She also knows that the order costs for resin are $100 per order, and that the lead time for delivery is four days. If the order size was 1,000 kilograms of resin, what would be the daily total inventory costs, EXCLUDING the cost of the resin?

A. $5

B. $10

C. $20

D. $25

E. $40

D
The materials manager for a billiard ball maker must periodically place orders for resin, one of the raw materials used in producing billiard balls. She knows that manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04 per day to carry a kilogram of resin in inventory. She also knows that the order costs for resin are $100 per order, and that the lead time for delivery is four days. What is the economic order quantity for resin?

A. 50 kilograms

B. 100 kilograms

C. 250 kilograms

D. 500 kilograms

E. 1,000 kilograms

D

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