Question 1  (3 points) Increased product line variety tends to decrease inventory levels. 1. True   2. False   Question 2  (3 points) Cycle stock is the portion of a company's inventory depleted through normal sale or use and replenished through the routine ordering process. 1. True   2. False   Question 3  (3 points) Inventory which protects against uncertainties in demand rate, lead time, or both is seasonal stock. 1. True   2. False   Question 4  (3 points) Jax Printers, Inc., maintains a cycle stock of 1000 cases of printing paper. 250 cases of paper are needed as buffer stock. Since the cycle stock exceeds the buffer stock, it is not necessary to keep any additional paper on hand. 1. True   2. False   Question 5  (3 points) The component of inventory carrying costs that reflects the very real possibility that inventory dollar value may decline for reasons largely beyond corporate control, is inventory risk cost. 1. True   2. False   Question 6  (5 points) Inventory as a percent of GNP has generally been declining in recent years. Which factor is responsible? 1. Reduction and elimination of unnecessary levels of inventory   2. Improved transportation service   3. Increases in inventory turnover rates   4. Improvements in communications and information technology   5. All of the above   Question 7  (5 points) The average inventory of XYZ Company is valued at $500000. The annual carrying cost of carrying the inventory is 20 percent. Which is the annual cost of carrying inventory? 1. $50000   2. $100000   3. $250000   4. $500000   Question 8  (5 points) Which reason for physical supply inventory involves purchases for hedging against future price increases, strikes, changing political policies, delayed deliveries, rising or falling interest rates, or currency fluctuations in world markets? 1. Safety stock   2. Speculative purchases   3. Seasonal supply   4. Maintenance of supply sources   Question 9  (5 points) Which is not a reason for holding physical distribution inventories? 1. Maintenance of sources of supply   2. Seasonality of demand   3. Production economies   4. Transportation economies   Question 10  (5 points) An inventory decision should consider safety stock when there is a chance of ________: 1. turnover   2. over ordering   3. stockout   4. oversupply   Question 11  (5 points) Motor Rebuilders, Inc. does custom rebuilding of automobile and truck engines and transmissions. As a rule, when an individual rebuilding order completed, a truck company was contacted to transport the item to the buyer. Motor Rebuilders pays higher rates for shipping small loads to the shipper's destination. Motor's logistics manager suggested that the rebuilt items be held in temporary storage until enough weight is accumulated to qualify for shipment in truckload quantity; enabling payment of lower rates. Motor Rebuilders created a physical distribution inventory for which reason? 1. Tranportation savings   2. Production savings   3. Seasonal demand   4. Goods for resale   Question 12  (5 points) Economy Wholesalers Co., Inc., accumulated a stock of 100000 crystal paperweights. For each case of Economy's letter size manila folders purchased, the customer would receive a paperweight. Which type of functional inventory did Economy create? 1. Cycle stock   2. Goods in transit   3. Promotional stock   4. Speculative stock   Question 13  (5 points) Which company functional area would most likely want to decrease inventory levels to improve turnover? 1. Marketing   2. Production   3. Finance   4. Sales   Question 14  (5 points) All are components of warehouse inventory carrying cost, except: 1. Capital cost   2. Inventory risk cost   3. Inventory service cost   4. Setup cost   5. All of the above are components of warehouse inventory carrying costs   Question 15  (5 points) Storage space cost increases as the inventory level increases because it is a ______ cost which is dependent on the number of units stored and their value? 1. fixed   2. variable   3. by-product   4. carry through   Question 16  (5 points) Which is the relationship between carrying cost and the level of inventory? 1. They are inversely proportional   2. They are directly proportional   3. Both are unaffected by capacity considerations   4. Under most circumstances they are unrelated   Question 17  (5 points) Which type of stockout cost is the most undesirable to the company? 1. Cost of back orders   2. Cost of lost sales   3. Cost of carrying inventory   4. Cost of expediting orders   5. Cost of lost customers   Question 18  (5 points) The last step in ABC classification analysis, assigning items into ABC groups, is the most difficult. What is the reason for this? 1. The item code is very complex   2. The difficult mathematical calculation   3. The subjective judgement required due to absence of a uniform decision rule   4. The difficulty in ranking items according to some criterion   Question 19  (5 points) What is the first question that should be asked regarding the effectiveness of a firm's approach to inventory management. 1. Whether overall inventory levels as a percent of sales rises or falls in response to increases in company sales?   2. How frequently inventory turns over   3. Whether a frequent need exists for expediting product movements   4. Whether the company's customers are satisfied with existing levels of customer service   Question 20  (3 points) Dependent demand for an item exists when the demand for that item is unrelated to the demand for other items. 1. True   2. False   Question 21  (3 points) The push approach to inventory management uses inventory replenishment to anticipate future demand. 1. True   2. False   Question 22  (3 points) A reorder point is a minimum stock level used to determine when to order a fixed quantity of inventory. 1. True   2. False   Question 23  (3 points) If lead time is 4 days, and daily demand is 12 units, the reorder point, under the condition of certainty, is 16 units. 1. True   2. False   Question 24  (3 points) QR and ECR focus on the outbound-to-customer realm of logistics rather than that of inbound activities. 1. True   2. False   Question 25  (5 points) How do carrying costs and order costs vary in the simple EOQ model? 1. According to the time of the year and seasonality of demand   2. Directly   3. Inversely   4. not at all   Question 26  (5 points) What is the effect on inventory carrying costs if order size is increased and frequency of orders decreased? 1. Costs increase   2. Costs decrease   3. Costs remain the same   4. The effect cannot be determined   Question 27  (5 points) What will be the effect on average inventory, if the order quantity is increased 100 units (assuming constant usage)? 1. An increase of indeterminate units   2. A decrease of 100 units   3. An increase of 50 units   4. A decrease of 50 units   Question 28  (5 points) If order cost per order are assumed to be constant, what is the effect on annual ordering cost by increasing the order size Q? 1. To decrease   2. To increase   3. To remain the same   4. The effect cannot by determined   Question 29  (5 points) Using the fixed order quantity model under conditions of certainty, which is the reorder point if lead time is a constant 5 days, and yearly demand is 10000 units (assuming 250 working days in the year)? 1. 100   2. 200   3. 400   4. 5000   Question 30  (5 points) Peerless Landscaping Services uses cypress mulch for their landscaping projects. Cypress Sawmill sells them the mulch for $10 a cubic yard in quantities up to 500 cubic yards. Cypress has an excess inventory of mulch, and offers to sell 1000 cubic yards to Peerless at $5 a cubic yard. Peerless's fixed order quantity has been 500 cubic yards, but because of the purchase economies, orders 1000 cubic yards. Which is the likey effect on Peerless's costs (assuming everything else remains the same)? 1. Order costs per order will increase   2. Total yearly ordering costs will decrease   3. Inventory carrying costs will decrease   4. Both b and c above   Question 31  (5 points) Demand for an item increases 10 percent, and the value of each unit increases 10 percent. What is the effect on EOQ (assuming everything else remains the same)? 1. EOQ increases 10 percent   2. EOQ increases 20 percent   3. EOQ decreases 10 percent   4. EOQ stays the same   Question 32  (5 points) Under conditions of uncertainty, the reorder point must be reformulated. The reorder point becomes: 1. average daily demand during lead time   2. safety stock to cover demand variations   3. cycle stock to cover total demand   4. a plus b   5. b plus c   Question 33  (5 points) Which is the principal effect of introducing uncertainty into the fixed order quantity model? 1. safety stock becomes relevant   2. product value begins to fluctuate   3. the capital cost component tends to vary   4. order cost per order varies   Question 34  (5 points) Assume that the following quantity discount schedule is appropriate. Order Size Discount (%) Unit Cost 0 to 49 0 $30.00 50 to 99 5 28.50 100 or more 10 27.00 If annual demand is 120 units, ordering costs are $20 per order, and the annual holding cost rate is 25 %, If there were NO discount at all (unit cost =$30/unit), the optimal order quantity would have been 1. 10   2. 15.3   3. 25.3   4. 25.96   5. 26.67   6. 50   7. 100   Question 35  (10 points) Assume that the following quantity discount schedule is appropriate. Order Size Discount (%) Unit Cost 0 to 49 0 $30.00 50 to 99 5 28.50 100 or more 10 27.00 If annual demand is 120 units, ordering costs are $20 per order, and the annual holding cost rate is 25 %, with the ABOVE DISCOUNT schedule, the optimal order quantity would have been 1. 10   2. 15.3   3. 25.3   4. 25.96   5. 26.67   6. 50   7. 100   Question 36  (5 points) Keith Shoe Stores carries a basic black dress shoe for men that sells at an approximate constant rate of 500 pairs of shoes every 3 months. Keith's current buying policy is to order 500 pairs each time an order is placed. It costs Keith $30 to place an order (Order Setup Cost). The annual holding cost rate is 20%. With the order quantity of 500, Keith obtains the shoes at the lowest poss6ible unit cost of $28 per pair. Other quantity discounts offered by the manufacturer are as follows. Order Size Price Per Pair 0 to 99 $36.00 100 to 199 32.00 200 to 299 30.00 300 or more 28.00 If the lowest price ($28) WERE available to all units, the optimal order quantity (EOQ) would have been 1. 129   2. 141   3. 146   4. 200   5. 300   6. 500   Question 37  (10 points) Keith Shoe Stores carries a basic black dress shoe for men that sells at an approximate constant rate of 500 pairs of shoes every 3 months. Keith's current buying policy is to order 500 pairs each time an order is placed. It costs Keith $30 to place an order (Order Setup Cost). The annual holding cost rate is 20%. With the order quantity of 500, Keith obtains the shoes at the lowest poss6ible unit cost of $28 per pair. Other quantity discounts offered by the manufacturer are as follows. Order Size Price Per Pair 0 to 99 $36.00 100 to 199 32.00 200 to 299 30.00 300 or more 28.00 Given the above discount, the minimum-cost order quantity for the shoes should be 1. 129   2. 141   3. 146   4. 200   5. 300   6. 500   Question 38  (5 points) Mission Computers, Inc. maintains CDRW Drive for sale throughout the year. The probability distribution of demand during lead time (DDLT) can be described as follows: ---------------------------- Demand(units) Probability 200 units 0.01 210 0.06 220 0.24 230 0.38 240 0.24 250 0.06 260 0.01 ---------------------------- Other information of the problem include: Annual Demand Rate (R) = 3600 units/yr; Value of the item (V) = $100/unit; Inventory Carrying Charge Rate (W) = 25%/yr; Order Setup Cost (A) = $200 per order. Stockout cost per unit (k)= $10/unit. In this case, applying the approach discussed in classes, the reorder point quantity which leads to the lowest total relevant costs (excess/safety stock holding costs, and expected stockout cost) should be 1. 200   2. 210   3. 220   4. 230   5. 240   6. 250   7. 260   Question 39  (10 points) Mission Computers, Inc. maintains CDRW Drive for sale throughout the year. The probability distribution of demand during lead time (DDLT) can be described as follows: ---------------------------- Demand(units) Probability 200 units 0.01 210 0.06 220 0.24 230 0.38 240 0.24 250 0.06 260 0.01 ---------------------------- Other information of the problem include: Annual Demand Rate (R) = 3600 units/yr; Value of the item (V) = $100/unit; Inventory Carrying Charge Rate (W) = 25%/yr; Order Setup Cost (A) = $200 per order; Stockout cost per unit (k)= $10/unit. In this case, applying the approach discussed in classes, under the optimal reorder point quantity and order size, the lowest total costs (cycle stock holding costs, order setup costs, excess/safety stock holding costs, and expected stockout cost) should be 1. $390   2. $2975   3. $3000   4. $6000   5. $6389   6. $7000   7. $10389   Question 40  (5 points) Mission Computers, Inc. maintains CDRW Drive for sale throughout the year. The probability distribution of demand during lead time (DDLT) can be described as follows: ---------------------------- Demand(units) Probability 200 units 0.01 210 0.06 220 0.24 230 0.38 240 0.24 250 0.06 260 0.01 ---------------------------- Other information of the problem include: Annual Demand Rate (R) = 3600 units/yr; Value of the item (V) = $100/unit; Inventory Carrying Charge Rate (W) = 25%/yr; Order Setup Cost (A) = $200 per order; Stockout cost per unit (k)= $10/unit. If the manager insists on maintaining 99% service level (i.e., filling the customer demand 99% of the time) regardless of costs, the reorder point quantity should then be 1. 200   2. 210   3. 220   4. 230   5. 240   6. 250   7. 260   Question 41  (5 points) It has become very popular for many large businesses to consolidate their traditionally large number of field warehouses or stocking points in the market. Johnson and Johnson is considering reducing its existing 16 warehouses carrying its diabetes care line of products into 4 regional distribution centers. Currently in these 16 warehouses, J&J is carrying a total of about 32000 units of safety stock to deal with all kinds of uncerties. If the consolidatin is implemented, by applying the Square Root Law, how many units of safety stock would be needed approximately? 1. 8000 units   2. 16000 units   3. 20000 units   4. 24000 units   5. 32000 units