Test Database

Chapter 8 – Statistical Inventory Management

True or False

1. When deciding on a purchasing discount, you must compare the holding cost, ordering cost, and the cost of goods for various order quantities.a. Trueb. False

2. The cost of carrying inventory and the cost of ordering inventory are inherently unstable around the reorder point.a. Trueb. False

3. When using continuous review systems, inventory is tracked and a replenishment order is placed at regular intervals of time.a. Trueb. False

4. A shortage will occur during the replenishment cycle only if the demand during the lead time exceeds the order point.a. Truea. False

5. The use of periodic review systems requires more safety stock than continuous review for the same level of customer serviceability.a. Trueb. False

6. As the targeted customer service level increases, the amount of inventory will grow rapidly larger.a. Trueb. False

7. The successful use of lean requires the use of a kanban card system.a. Trueb. False

8. The central purpose of the independent/dependent demand principle is to help materials planners select the most appropriate ordering techniques for items.a. Trueb. False

9. Statistical inventory replenishment models work best when demand is irregular over the short-term.a. Trueb. False

10. The review interval is defined as the span of time from the moment a replenishment order is created until it has been received.a. Trueb. False

Multiple Choice

11. All of these statements are considered to be primary objectives of an organization except:

a. optimizing use of resourcesb. providing good customer servicec. increasing inventory d. providing sufficient return on investment

12. Which of the following would be considered work-in-process (WIP) items?a. items in a stockroom ready for sale to a customer b. items in a raw materials/components warehousec. items that have been scrapped during productiond. components in queue ahead of a milling machine

13. Which of the following statements is most accurate about inventory management?

a. inventories and production must be managed togetherb. inventory is not important at the production planning levelc. inventories are usually insignificant on the balance sheetd. inventory does not cost much to carry

14. What is the name of materials used in the production process that do not become part of the product?

a. raw materials b. work-in-processc. finished goodsd. MRO items

15. Which of the following company objectives are in conflict? a. maximum customer service and low-cost plant operationb. low-cost plant operation and cash flowc. maximum inventory investment and customer serviced. high cash flow and profitability

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16. Which of the following equations is correct?a. assets = liabilities – owner’s equityb. income = revenue – liabilitiesc. owner’s equity = assets – liabilitiesd. revenue = cost of goods sold – general and administrative expenses

17. Why is utilizing a cost-benefit trade-off so important when making inventory decisions?

a. it enables planners to always minimize inventories at their lowest level b. it enables planners to gauge how much to spend on inventory

investmentc. it enables planners to always maximize customer serviced. it enables planners to correctly calculate inventory replenishment

18. Which of the following is not a reason for keeping inventory?a. to allow for goods in transitb. to build up stock for seasonal demandc. to guard against errors in planningd. to guard against uncertainty in supply and demand

19. Which of the following is an objective of marketing and sales in a typical organization?

a. capability to easily configure products to a unique specificationb. produce products in as large a lot size as is possiblec. ability to aggregate inventories for purchasing, manufacture, or storaged. utilization of lean manufacturing practices

20. ________ demand is characteristics of manufacturers or distributors that service supply chain businesses subject to _______ demand.

a. dependent / independentb. derived / independentc. independent / derivedd. independent / dependent

21. Which of the following provides a buffer for seasonal demand?a. lot-size inventoryb. fluctuation inventoryc. anticipation inventoryd. decoupling inventory

22. In times of economic inflation which of the below inventory valuation methods is most like to be used?

a. standard cost b. FIFOc. LIFOd. average

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23. A company has 9,000 units on hand and the annual usage is 48,000 units. There are 240 working days in the year. What is the number of days supply?

a. 40 daysb. 25 daysc. 50 daysd. 45 days

24. Given the following percentage costs of carrying inventory, calculate the annual carrying cost if the average inventory is US$1 million. Capital costs are 10%, storage costs are 6%, and risk costs are 7%.

a. $230,000b. $100,000c. $200,000d. $250,000

25. Items that are purchased or manufactured in quantities greater than needed immediately create ________ inventories:

a. anticipationb. lot-sizec. hedged. safety stock

26. Which of the following is NOT a cost of carrying inventory?a. capital costsb. storage costsc. purchase costsd. carrying costs

27. All of the following are reasons to keep inventory EXCEPT:a. allow flexibility in production schedulingb. couple supply with demandc. meet fluctuations in product demandd. provide a safeguard against delivery time variations

28. When demand is steady, cycle inventory and lot size are related asa. cycle Inventory = lot size x 2b. cycle Inventory = Q*2c. cycle Inventory = Q/2d. cycle Inventory = lot size = Q

29. Damage and shrinkage would most likely be found in which of these costs?a. capitalb. riskc. storaged. service

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30. Economies of scale in purchasing and ordering motivate a manager toa. increase the lot size and cycle inventoryb. decrease the lot size and cycle inventoryc. match order quantity to demandd. increase the lot size and reduce cycle inventory

Answer Key1. T2. F3. F4. T5. T6. T7. F8. T9. F10. F11. c12. d13. a14. d15. a16. c17. b18. c19. a20. b21. c22. c23. d24. a25. b26. c27. b28. c29. b30. a

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