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Exam 12: Inventory Management

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Question 1

True/False

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It is critical that the exact quantity calculated in the EOQ model be ordered.

A) True
B) False

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False

Question 2

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The single-period model can be very helpful in determining how much to order.

A) True
B) False

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True

Question 3

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The A-B-C approach involves classifying inventory items based on their name.

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 dollar value of the average inventory level?

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

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

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 average monthly total costs, EXCLUDING the value of the bills?

Variability in demand and/or lead time can be compensated for by safety stock.

The purpose of cycle counting is to

Using the EOQ model, the higher an item's carrying costs, the more frequently it will be ordered.

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 $0.04 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. At what point should resin be reordered?

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

ROP models indicate to managers the time between orders.

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 $0.80 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?

The introduction of quantity discounts will cause the optimum order quantity to be

An operations strategy for inventory management should work toward

The calculation of safety stock requires knowledge of demand and lead time variability.

The need for safety stocks can be reduced by an operations strategy which

In the basic EOQ model, if annual demand doubles, the effect on the EOQ is

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