Q#1: Which of the following is a function of inventory?
(A) to decouple or separate parts of the production process
(B) to provide a stock of goods that will provide a selection for customers
(C) to take advantage of quantity discounts
(D) to hedge against inflation
(E) all of the above are functions of inventory
Answer: (E) all of the above are functions of inventory
Q#2: Which of the following would not generally be a motive for a firm to hold inventories?
(A) to decouple or separate parts of the production process
(B) to provide a stock of goods that will provide a selection for customers
(C) to take advantage of quantity discounts
(D) to minimize holding costs
Answer: (D) to minimize holding costs
Q#3: All of the following statements about ABC analysis are true except:
(A) inventory may be categorized by measures other than dollar volume
(B) it categorizes on-hand inventory into three groups based on annual dollar volume
(C) it is an application of the Pareto principle
(D) it states that all items require the same degree of control
(E) it states that there are the critical few and the trivial many inventory items
Answer: (D) it states that all items require the same degree of control
Q#4: ABC analysis is based upon the principle that:
(A) all items in inventory must be monitored very closely
(B) there are usually a few critical items, and many items which are less critical
(C) an item is critical if its usage is high
(D) the safety stock in terms of volume should be higher for A items than for C items
Answer: (B) there are usually a few critical items, and many items which are less critical
Q#5: Which of the following statements about ABC analysis is false?
(A) ABC analysis is based on controlling few important items for major savings
(B) āAā items are tightly controlled and regularly reviewed
(C) āCā items have minimal records and simple control
(D) ABC analysis assumes all items must be tightly controlled
Answer: (D) ABC analysis assumes all items must be tightly controlled
Q#6: ABC analysis divides on-hand inventory into three classes based on:
(A) item quality
(B) unit price
(C) number of units on hand
(D) annual demand
(E) annual dollar volume
Answer: (E) annual dollar volume
Q#7: Cycle counting:
(A) is done once a year
(B) provides a measure of inventory accuracy
(C) measures inventory turnover
(D) assumes equal verification frequency for all items
Answer: (B) provides a measure of inventory accuracy
Q#8: Among the advantages of cycle counting is that it:
(A) does not need to be performed for less expensive items
(B) does not require detailed inventory records
(C) does not require highly trained people
(D) allows faster identification and correction of errors than annual physical inventory
Answer: (D) allows faster identification and correction of errors than annual physical inventory
Q#9: The two most basic inventory questions answered by models are:
(A) timing and cost of orders
(B) quantity and cost of orders
(C) timing and quantity of orders
(D) order quantity and service level
Answer: (C) timing and quantity of orders
Q#10: EOQ approximately is:
(A) 70
(B) 110
(C) 250
(D) 12,000
Answer: (B) 110
Q#11: Most inventory models attempt to minimize:
(A) stockout likelihood
(B) number of items ordered
(C) total inventory-based costs
(D) number of orders placed
Answer: (C) total inventory-based costs
Q#12: If ordering cost doubles, EOQ will:
(A) increase by about 41%
(B) increase by 100%
(C) increase by 200%
(D) either increase or decrease
Answer: (A) increase by about 41%
Q#13: EOQ approximately is:
(A) 527
(B) 100
(C) 490
(D) 142
Answer: (A) 527
Q#14: Which statement about EOQ is true?
(A) If ordering cost doubles, EOQ rises
(B) If demand doubles, EOQ increases
(C) If carrying cost increases, EOQ falls
(D) All of the above
Answer: (D) All of the above
Q#15: Which statement is false about EOQ?
(A) If setup cost decreases, EOQ falls
(B) If demand increases, EOQ increases
(C) If ordering cost increases, EOQ rises
(D) If demand doubles, EOQ doubles
Answer: (D) If demand doubles, EOQ doubles
Q#16: Revised EOQ is:
(A) three times as large
(B) one-third as large
(C) nine times as large
(D) one-ninth as large
Answer: (B) one-third as large
Q#17: New EOQ with 50% demand increase:
(A) unchanged
(B) increased by less than 50%
(C) increased by 50%
(D) increased by more than 50%
Answer: (B) increased by less than 50%
Q#18: Carrying cost per unit per year is:
(A) $1.50
(B) $3.00
(C) $2.00
(D) $6.00
Answer: (B) $3.00
Q#19: Total annual inventory cost is:
(A) $400
(B) $800
(C) $1,200
(D) $16,000
Answer: (B) $800
Q#20: EOQ order quantity is:
(A) all 4,000 units
(B) 200 units
(C) 1000 units
(D) 400 units
Answer: (C) 1000 units
Q#21: EOQ with discounts determines:
(A) minimum inventory for service level
(B) lowest purchase price
(C) order policy type
(D) optimal order quantity
Answer: (D) optimal order quantity
Q#22: Reorder point decision rule means:
(A) 100 is reorder point
(B) 14 is reorder point
(C) 100 depends on lead time demand
(D) 14 is safety stock
Answer: (B) 14 is reorder point
Q#23: Production Order Quantity model:
(A) applies only to internal production
(B) relaxes single receipt assumption
(C) relaxes constant demand assumption
(D) minimizes production cost
Answer: (A) applies only to internal production
Q#24: Production Order Quantity model:
(A) relaxes constant demand assumption
(B) uses ordering cost not setup cost
(C) used when items are used as produced
(D) results in larger average inventory
Answer: (D) results in larger average inventory
Q#25: Quantity discount model:
(A) minimizes ordering + holding cost
(B) minimizes unit price
(C) may choose below discount level
(D) minimizes total cost including purchase cost
Answer: (D) minimizes total cost including purchase cost
Q#26: Safety stock (95% service level):
(A) 41
(B) 55
(C) 133
(D) 140
Answer: (A) 41
Q#27: Reorder point:
(A) 18
(B) 24
(C) 32
(D) 33
(E) more than 35
Answer: (C) 32
Q#28: Purpose of safety stock is to:
(A) replace failed units
(B) eliminate stockouts
(C) remove inventory errors
(D) control stockout risk due to demand variability
Answer: (D) control stockout risk due to demand variability
Q#29: Safety stock is determined by:
(A) minimizing stockout cost
(B) eliminating all stockouts
(C) meeting 95% demand
(D) controlling stockout risk level
Answer: (D) controlling stockout risk level