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Exam 13: Inventory Management

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Question 71

True/False

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An example of inventory holding cost is the cost of moving goods to temporary storage after receipt from a supplier.

A) True
B) False

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Question 72

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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.

F) All of the above
G) C) and E)

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Question 73

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Which one of the following is not generally a determinant of the reorder point?

EOQ inventory models are basically concerned with the timing of orders.

When to order can be calculated by the ROP and expressed as a quantity.

Annual ordering cost is inversely related to order size.

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 manager intends to order a new machine and must now decide on the number of spare parts to order along with the machine. The parts cost $400 each and have no salvage value. The manager has compiled a frequency distribution for the probable usage of spare parts, as shown: $\begin{array} { l l } \text { Usage } & \text { Frequency } \\\hline 0 & .08 \\1 & .30 \\2 & .24 \\3 & .20 \\4 & .18\end{array}$ For what range of shortage costs would stocking one spare part constitute an optimal decision?

If no variations in demand or lead time exist, the ROP will equal:

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

Which of the following is not one of the assumptions of the basic EOQ model?

Dairy items, fresh fruit, and newspapers are items that:

Safety stock is held because we anticipate future demand.

A machine is expected to use approximately three spare parts during its useful life. The spares cost $200 each and have no salvage value or other use. The manager has ordered five spares. Assuming a Poisson usage rate, what range of shortage cost is implied?

Given the same demand, setup/ordering costs, and carrying costs, the EPQ calculated using incremental replenishment will be ____________ if instantaneous replenishment was assumed.

Demand for a component averages 80 units per week, with a weekly standard deviation of demand of 14 units. The current supplier of this component offers a four-week lead time. Stockout risk is to be kept at 8 percent. Assume that it costs $50 to hold one unit in inventory for a year. Suppose the annual cost for the items would be $500 higher if they were purchased from another vendor, but that vendor would offer a two-week lead time. Would it be better to go with the more-expensive but more-responsive vendor?

In the quantity discount model, with carrying cost stated as a percentage of unit purchase price, in order for the EOQ of the lowest curve to be optimum, it must:

A dry cleaning firm uses an average of 20 gallons of cleaning fluid a day. Usage tends to be normally distributed with a standard deviation of two gallons per day. Lead time is four days, and the desired service level is 92 percent. What amount of safety stock is appropriate if a fixed order size of 600 gallons is used?

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: